Traders, chocolate manufacturers and confectioners have been boosting their cocoa stocks over the past five weeks in part to cover supply and in part to hedge against price risk, notes Keith Flury, a soft commodities analyst with Rabobank.
“Commercial users have been engaged in a sizeable programme of buying in the past five weeks to secure stocks after holding off purchases during the Ivorian crisis.
The buying surge could result in a short selling rally but the supply of beans is likely to be sufficient to meet demand with Ivory Coast, Ghana and other African producers all reporting sizeable increases in arrivals,” reports Rabobank.
Speculators are betting on lower cocoa prices.
But Flury told this publication the current price of cocoa of approx $3,000 per tonne is unlikely to “settle much lower” in the foreseeable future, with factors such as concerns about double dip recession in North America weighing in on the cocoa market.
He believes the current market fundamentals are such that speculators are not interested in investing in cocoa and that scenario is unlikely to change unless “next season’s crop levels falls way below current expectations.”
With a large amount of cocoa beans still available, demand has first to “eat through the large short term supply,” he remarks, and Flury expects a shift to a deficit in bean supply in the next season.
Last year saw phenomenal rainfall occur just when needed due to the La Nina effect, which resulted in a bountiful cocoa crop in the West African cocoa growing regions, said Flury. But he notes the rainfall levels have been near or below average this year, and coupled with tree neglect, yields from the Ivory Coast are predicted to be much lower than this record season.
According to ICCO sources, global cocoa consumption expressed in terms of cocoa beans crushing was estimated to rise to about 3.8 million tonnes during the current 2010-2011 cocoa season, up from 3.7 million tons in the 2009-2010.
Euromonitor cocoa market analyst Francisco Redruello warns that if the Greek debt crisis worsens and spreads to peripheral economies – particularly Spain, economical growth in Western Europe will slow down and this “would undoubtedly have an impact on cocoa demand.”
In addition, said Redruello, a breakdown of confidence in EU peripheral treasuries would certainly prompt an increase in risk aversion and a rally on the US dollar – depressing further nominal prices not only in cocoa but in all highly-liquid agricultural commodities.