Despite a mass roll-out of vaccinations underway in many countries, the 2020-21 cocoa season is expected to result in a production surplus given the current market conditions.
London cocoa futures were seen at 1,644 pounds per tonne on average at the year's end versus 1,699 pounds at the close on Friday, 5 February, while New York futures were estimated to close 2021 at $2,438 per tonne compared to $2,587 on Friday 5 February, Reuters reported.
The pandemic has reduced cocoa grindings to as much as 10% compared to the same period last year as out-of-home consumption of chocolate fell strongly.
Analyst Caroline Bain from Capital Economics told Reuters, “Farmers have struggled to sell beans over the last 12 months, in large part due to the impact of COVID-19 in the hospitality sector, with closures denting demand.”
In a poll, analysts said they still expect a large surplus on the market, even if vaccination allows for a recovery in the hospitality sector.
The 12 analysts polled by Reuters said they saw a supply surplus of 218,000 tonnes in 2020/21 versus a much smaller surplus of 19,000 tonnes in 2019/20 estimated by the ICCO.
In its monthly review, the ICCO said that over the period 4 to 11 January 2021, prices of the first position cocoa futures contract went down on both sides of the Atlantic.
At the time, a mild Harmattan [wind] was reported in West Africa and unprecedented peaks of new COVID-19 cases were recorded in Europe and the United States. As a direct market reaction, prices tumbled to their lowest levels for January, the ICCO Review stated.
Data shows cocoa settling at $2,270 per tonne and $2,483 per tonne in London and New York respectively. Moving on a week to 12-19 January, prices recovered from their previous plunge and firmed by 4% on both markets. This bullish stance was an aftereffect of stronger-than-anticipated grindings in South-East Asia and North America for Q4.2020.
In London, prices increased from US$2,310 to US$2,409 per tonne while in New York, they strengthened from US$2,504 to US$2,602 per tonne.
The ICCO said the upward trend was stalled over 20-29 January 2021 as the European Cocoa Association (ECA) posted data showing lower-than-expected levels of grindings in Europe during the fourth quarter of 2020. The price evolution during the month were not impacted by the weight of the US dollar as its index remained stable over the same period.
For selected cocoa producing countries, namely Ghana, Côte d’Ivoire, Ecuador and Nigeria, a clear observation is that the differentials for all listed countries have followed a descending trend on both the European and US markets since August 2020.
With the introduction of the $400/tonne Living Income Differential (LID) on the market for Ghana and Côte d’Ivoire, cocoa bean users would require lower premiums to reduce manufacturing costs and consequently raise margins, which led some consumers to be more conservative in their buying, helping to boost stocks at origins.
The premium received for Ecuadorian beans in the US dropped by 8% from $231 to $214 per tonne while a 13% reduction to $356 was applied to the origin differential for Nigeria.
The ICCO review notes that Ghanaian cocoa continues to attract the highest market premium in Europe and the United States, which indicates the constant quality of the cocoa beans produced in the country.
In its review, the ICCO said: “Our preliminary estimate sets the global cocoa market surplus at about 100,000 tonnes. At the end of February, the ICCO Secretariat will release a detailed report of its first crop and grindings forecasts for the 2020/21 cocoa year in its Quarterly Bulletin of Cocoa Statistics (QBCS).”