Cocoa markets are set to trade erratically on uncertain West African crop prospects, with heavy production needed to make up for last year’s deficit, analyst Judith Ganes Chase warns.
“Following a production deficit of 180,000 tonnes in 2015-16, conditions need to be very favorable to close this gap and swing the market to a large surplus,” Ms Ganes Chase said in the note.
“This will be more of a challenge with cocoa processing margins now attractive, leading to improved demand.”
Ms Ganes Chase warned of “uncertainty about the upcoming main crops,” focused on the main cocoa producing region of West Africa.
The ongoing weather risk is likely to leave the market “second guessing and trading erratically,” she said.
Cocoa farmers in West Africa, from where most of the world’s cocoa originates, have two harvests a year. The mid crop, which runs from May to August, and the main crop, which runs from October to March.
Prospects for the next West African main crop have been hurt by lingering hot dry weather.
“It may not have been a disaster or even lead to a poor crop but it is unlikely that production will be exceptional,” Ms Ganes Chase said.
“The weather forecasts continue to point to ongoing erratic weather with episodes of it being too hot and dry for the development of the main crop,” she added.
Keeping the markets on edge
With months to go before the start of the harvest, there little certainty over what main crop conditions will be.
On paper, the “odds of a third year of subpar output would seem unlikely given the end to El Nino coupled with better prices paid to farmers”.
“However, until the main crop starts to actually flow and the quality and quantity are noted, there is still enough uncertainty about the future supply at a time when world stocks are already low to keep the market on edge,” she said.
And the total world grind, the volume of beans processed into cocoa butter a powder, is starting to rise, indicating underlying consumer demand.
“This recovery should continue,” said Ms Ganes Chase, noting that margins for grinders are improving.
“I would expect to positive grind figures continue for not only the third and fourth quarter but into 2017 as well,” she said.
(Source – http://www.agrimoney.com/news/strap-in-for-volatile-cocoa-market-warns-analyst–9831.html)