Along with cotton, cocoa is one of two commodities on the S&P agricultural index to presently find itself in bull-market conditions.
Bloomberg reported on Thursday that over the coming year, demand for cocoa could exceed output by 119,000 metric tons and send prices up by as much as 6 percent to $2,726 per ton by the end of 2013.
The forecast from Macquarie Group Ltd. is based on weather conditions in the Ivory Coast, the world’s biggest producer, where the southern agricultural region this year has experienced a significant drought, receiving only about three-quarters of the usual rainfall.
The Ivory Coast accounts for close to half of the globe’s cocoa production, harvesting 70 percent of its output in the earlier part of the year, followed by a smaller harvest. Unusually hot and arid weather during the months of April and May have affected both crops, the larger one due to slower-growing pods, and the smaller one because trees from the first harvest have already sucked up most of the available groundwater.
The world’s second-largest cocoa producer, Ghana, is also facing similar difficulties from unseasonal climate conditions. Dry weather in West Africa in general could extend as far as in to November, which could also affect 2014 crops.
Macquarie has predicted a 1.2-percent drop in world cocoa output for 2013-2014 to 3.94 million tons, with 1.42 million of that coming from the West African nation. But the coming shortage and subsequent higher prices are not solely the fault of Ivory Coast production issues. According to data from the European Cocoa Association in Brussels, European cocoa processing has fallen over 8 percent from the first quarter. Furthermore, prices should see some support from delivery delays resulting from quality issues for cocoa beans being shipped out of storehouses in Antwerp, Belgium.
But there is some indication that cocoa prices will hit resistance from larger stockpiles, which by the end of September could equal nearly 2 tons, or half a year of global production. As well, numerous struggling economies have been cutting back on cocoa purchases. West European countries may see purchases expand only 0.5 percent in the coming year, well short of the 1.3-1.5 percent expansion that analysts had predicted.
The situation is not yet problematic in the Ivory Coast where all of the current year’s crops have already been sold. Investors, for their can expect the cocoa bull market to extend into the near to mid-term future.
[Image: Ivorian Cocoa Beans, courtesy of Wikimedia Commons]
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