Cocoa: Demand joins the supply side in the bull camp

Focus on Futures: Cocoa

The past few weeks have seen cocoa prices spike out of their long-standing range of between $2,000 and $2,500 per tonne (Chart 1).

West African cocoa producers are heading into the final few weeks of their mid-crop seasons. The Ivory Coast, Ghana, Nigeria, and Cameroon will all harvest significantly smaller crops than they did last year. There are no great surprises, though. The final numbers are very close to estimates that have been on the street for several months.

As expected, there’s been no improvement in Ivorian arrivals as the mid-crop progressed. In fact, the arrivals are 80,000 tonnes, or 5.7%, below last year at this time, compared with 3.8% at the beginning of July. Forecasts for the 2011-12 combined main and mid crops are at about 1.35 million tonnes, down from 1.5 million tonnes a year earlier. That estimate will be revised upwards, because we are already at that level, but not by much, and that’s where the bearish news ends.

Ghanaian mid-crop arrivals are much weaker than last year’s, currently at just over 51,000 tonnes. Last season, the mid-crop reached 107,000 tonnes. With very little time remaining, total mid-crop will not climb much more. That would bring total production for 2011-12 to somewhere between 825,000 and 850,000 tonnes, sharply below 2010-11 output of over 1 million tonnes.

While these poor production performances for the world’s two largest producers have more or less been known for some time, prices were restrained by anemic demand.

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