Bigger chocolate appetite to boost cocoa prices in 2014
Cocoa prices are seen hitting three-year highs in 2014, adding to last year's impressive performance due to tight supplies and strong growth in demand for chocolate, a Reuters poll of 17 traders and analysts showed on Thursday. World 2013/14 cocoa production is expected to fall around 100,000 tonnes short of demand following a 150,000-tonne shortfall the previous year, according to the poll's median forecast.
Copyright Reuters, 2014
Growing chocolate consumption was expected to accelerate cocoa demand growth to 3 percent in 2013/14, above a historical average of 2 to 2.5 percent. "The West African crops are good, we're attributing the deficit to an increase in consumption," a European trader said.
Global October-December cocoa grindings, an indicator of demand, were estimated to be up around 5 percent compared with the same period a year earlier. Cocoa was one of the best performing commodities in 2013, with prices rising around 20 percent to close the year at 1,727 pounds a tonne. Speculators hold a near record long position in the London and New York markets, betting on further price increases.
Poll respondents forecast prices would continue their bull run with Liffe prices reaching 1,900 pounds by the end of 2014, although in the short term prices were expected to trade sideways, forecast at 1,750 pounds by the end of the first quarter. A modest increase in production was expected in top grower Ivory Coast, with the 2013/14 crop pegged at 1.52 million tonnes, according to poll respondents.
The second largest grower Ghana's crop was forecast at 855,000 tonnes. For the previous season, the International Cocoa Organisation (ICCO) estimated Ivory Coast output at 1.45 million tonnes and Ghana's crop at 835,000. "With demand for chocolate gaining pace in developed markets as well as consumption in emerging markets, especially Asia continuing to be firm, the prospect of another supply deficit for the 2013/2014 crop year continues to be imminent, despite robust production," the ICCO said in its most recent monthly report.
Several respondents said that InterContinentalExchange's acquisition of the Liffe soft commodities markets late last year would be important in 2014 as ICE reviews the London-based cocoa contract and considers changes. "I think ICE owning both contracts is very important and will have a very interesting impact on the London market," said Jonathan Parkman, joint head of agriculture at brokerage Marex Spectron.
"They're looking at physical convergence," Parkman added, referring to a closer link between physical and futures prices. A presidential election due in Ivory Coast in 2015 could cause some short term political uncertainty, traders and analysts also said. "The presidential election in Ivory Coast next year means political risk is more on people's minds," a European analyst said.