Cocoa futures rose to the highest in almost a year in London, entering a bull market, on signs falling production in top growers Ivory Coast and Ghana isn’t keeping up with demand.
Global cocoa demand will outstrip supply by 209,000 metric tons in the season ending Sept. 30, estimates KnowledgeCharts, a unit of Commodities Risk Analysis in Bethlehem, Pennsylvania. That is bigger than the 52,000-ton deficit forecast by the International Cocoa Organization in London. The shortage next season will amount to 188,000 tons, KnowledgeCharts data show.
Cocoa prices jumped 23 percent from a 14-month closing low on March 4, signaling higher costs for candy makers including Hershey Co. and Nestle SA. Farmers in Ivory Coast and Ghana are harvesting the mid-crop, or smaller of two annual harvests. At the same time, demand for chocolate has advanced, sending the cost of cocoa butter relative to bean prices last month to the highest since 2008 in Europe.
“Two months ago, the consensus deficit for the current season was very different than what it appears to be now,” Jonathan Parkman, co-head of agriculture at Marex Spectron Group, said by phone from London today. “A lot of that has to do with the Ivory Coast and Ghana numbers showing that the mid-crops weren’t so good, showing that production numbers were slightly lower than we had previously thought.”
Cocoa futures for December delivery climbed 3 percent to settle at 1,704 pounds ($2,658) a ton on NYSE Liffe in London. Earlier today, prices rose to 1,706 pounds a ton, the highest for a most-active contract since Sept. 14, 2012. Prices will rise to 1,750 a ton before the end of the year, the highest since September 2011, according to the median of nine trader estimates published by Bloomberg on Aug. 15.
Ivory Coast production will fall for a third year in 2013-14, to 1.42 million tons from 1.455 million tons this year, Macquarie Group Ltd. estimates. In Ghana, output will fall to 800,000 tons from about 900,000 tons over the same period, Lone, Togo-based lender Ecobank Transnational Inc. said.
Bean deliveries to ports in Ivory Coast from Oct. 1 to June 30 were 1.28 million tons, according to government data. That’s smaller than the 1.34 million tons estimated on July 2 by KnowledgeCharts. In Ghana, purchases from farmers totaled about 800,000 tons from Oct. 1 through Aug. 8, down from 829,000 tons a year earlier, data from the researcher show.
Dry weather in Ivory Coast and Ghana earlier this year means that the development of the next crop was delayed by about a month. Rain in the past 30 days amounted to 1 to 1.5 inches compared with an average 3 to 3.5 inches for this time of the year, Kyle Tapley, a meteorologist at MDA Weather Services in Gaithersburg, Maryland, said yesterday.
Cocoa butter was 2.65 to 2.75 times the cost of cocoa futures on NYSE Liffe last month, according to three traders with direct knowledge of the sales. Cocoa butter accounts for 20 percent of the weight of a chocolate bar. U.S. chocolate candy sales rose 6.7 percent to $748 million in the four weeks ended Aug. 11 from a year earlier, as prices gained 3.7 percent, said Kenneth Shea, a senior analyst for food & beverages at Bloomberg Industries, citing IRI data.
“I’m certainly more interested in the demand story than I am in the production story,” Parkman said. “Because of that, I think it’s much more interesting for cocoa longer-term than a short-term production issue might be. Demand is going to be key rather than supply.”