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Cocoa deficit to bring prices higher, predicts Rabobank

By Oliver Nieburg , 22-May-2012

Photo credit: World Cocoa Foundation
Photo credit: World Cocoa Foundation

A consecutive deficit in 2012/13 is set to move cocoa prices higher as supply struggles to meet rising demand for chocolate products in Asia, according to financial services group Rabobank.

In its latest Agri Commodities monthly report, Rabobank said that cocoa prices would rise until the end of the year due to increased demand in Asia and Government changes in the Ivory Coast.

Supply worries

“In our view the cocoa markets will move higher in Q3 and Q4 due to a tighter fundamental outlook and concerns about supply from the Ivory Coast as a result of a new government cocoa program,” said Rabobank.

Despite bumper stocks still left over from the 2010/11 season, there are concerns that the coming supply will not meet rising grinding demands.

Rabobank said that the London market was more vulnerable in the short-term to short downside correction than the NY market due to larger speculator long positions.

It forecast global cocoa production for the 2012/13 to be 4.1m tonnes.

89,000 tonnes deficit

“With Asian demand growth remaining the driver for grinding increases, we foresee a 3.1% increase in global consumption to 4.2m tonnes resulting in a forecast deficit of 89,000 tonnes,” said Rabobank.

If these predictions come to fruition the market will have a surplus of 86,000 tonnes from previous seasons, which will lead to prices increases.

Rabobank expects prices to return to the average since 2008 ($2,761 per tonne) in order  to meet growing demand.

Demand from Asia

Demand for cocoa in Asia as high as many leading confectioners are experiencing sales growth that Ioutpacing growth in developed markets.

Nestle, for example, saw a 12.2% sales boost in Asia, Oceania and Africa in its Q1 results released last month, over double the growth rate it oversaw in Europe and the Americas.

Hershey too looks set to introduce more products in Asia as it plans to open an R&D centre in China later this year.

Even smaller chocolate manufacturers are eyeing the Asian market. Finish confectionery Fazer for example last month announced ambitious plans to enter the continent after it had secured exclusive rights to branded confectionery for mobile phone franchise Angry Birds.

The ICCO’s daily cocoa price for 21 May stood at $2,322 per tonne.

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