The cocoa market will be in deficit both this season and next, as rises in production fail to keep up with grindings. World production will total 3.965m tonnes in the current 2012/13 season versus grindings of 4.039m tonnes, resulting in a deficit of 74,000 tonnes, The Public Ledger’s Cocoa S&D Poll of 43 industry experts showed.
In 2013/14, the deficit will increase to 178,000 tonnes with output at 4.036m tonnes and grindings at 4.214m tonnes.
The cocoa sector has seen a surplus for the last two seasons, which has helped prices on the terminal market cool from a 33-year high of over £2,700 ($4,080) a tonne reached in 2010. But a recovery in demand as Europe and the US emerge from recession will help keep futures – which have traded at around £1,400 to £1,600 over the last year – supported over the coming two seasons.
“I expect the global price of cocoa to increase compared to 2012/13 levels. Demand in Europe and the US is expected to increase due to an anticipated recovery of their economies,” said one poll respondent, an analyst based in Ghana.
The poll revealed that one of the biggest concerns in the cocoa market currently is falling prices, which could affect the crop next season as growers in some producing nations neglect trees. However, strong demand growth in emerging markets in Asia and South America will present the greatest opportunities for the sector in the coming years.
DEMAND
On the demand side, a rise in world grindings in 2012/13 will be driven by growth in Indonesia, Ghana and the US. Global growth is forecast at 2.9% this year.
The second European trader was more bearish, however. “For global demand growth a lot of people had been suggesting over 3%. I would tend to say that it’s going to be anything between 1.5 and 2.5%,” he noted.
The EU
Biggest grinder the EU is expected to process fewer beans this year (1.332m tonnes versus 1.359m tonnes last year). However, grindings are likely to recover next year to 1.406m tonnes.
“I wouldn’t be surprised to see demand in Europe coming off again this year,” said the first European trader. “The demand for butter and powder combined is nothing to write home about. I wouldn’t be surprised to see some capacity not being used in the second quarter again as well.”
Europe’s first-quarter cocoa grind fell 3.9% from the same period last year to 339,377 tonnes, in line with trade forecasts.
North America
Expectations for grindings in the US are slightly more optimistic. This year 400,000 tonnes of beans will be processed versus 387,000 tonnes last year, while next year the figure should rise again to 410,000 tonnes, according to the poll.
US butter ratios have been strong in recent months due to renewed demand in the region. Grindings in North America were higher than expected in the first quarter of this year, up nearly 6% versus the same period of 2012. While traders had expected relatively stagnant data, it turned out to be the biggest year- on-year rise in two years. Many traders are expecting another slight rise in North American grindings in the second quarter as chocolate makers build up stocks.
Asia
Cocoa grindings in Malaysia and Singapore will be more or less flat this year (295,000 and 83,000 tonnes respectively), although overall Asian grind will be boosted by growth in Indonesia, which is expected to process 315,000 tonnes from 265,000 tonnes last year.
Indonesia, Malaysia and Singapore are all expected to see growth in 2013/14 to 338,000, 305,000 and 85,000 tonnes respectively, due to strong consumption growth for cocoa in most of Asia.
Africa
West Africa is also seen grinding more cocoa in the next two years. Ivorian grindings were pegged to remain more or less flat this year and next, although growth in neighbouring Ghana will more than offset this. Grind in the latter is seen at 235,000 tonnes this season, versus 215,000 tonnes last season, and 261,000 tonnes in 2013/14.
A director at Saf Cacao, the biggest cocoa exporter in San Pedro, recently told The Public Ledger that although he would like his firm to process more beans before exporting, European buyers prefer to grind beans themselves for financial reasons.
“We would love to process more but Europe is protecting its manufacturers. There are advantages for them to take beans and process them in Europe – lower taxes for example,” he said. “I am Ivorian and I want this country to grow, because if this country grows then we grow. Our intention is not to sell all our cocoa to let others (process) it and make money.”
Referring to the coming seasons the director said: “We are seeing what is happening in the field and I don’t think farmers will grow more cocoa, but we definitely have the hope to process more cocoa here.”
