Cocoa prices seen falling below current levels at end of 2021

NEW YORK: Cocoa prices are seen falling below current levels at the end of 2021 as demand remains slow due to the nagging impact from the coronavirus pandemic, and a large surplus in the global market is also expected in the 2020/21 season, a Reuters poll showed.

London cocoa futures were seen at 1,644 pounds per tonne on average at the year's end versus 1,699 pounds at the close on Friday, while New York futures were estimated to close 2021 at $2,438 per tonne compared to $2,587 on Friday.

"Farmers have struggled to sell beans over the last 12 months, in large part due to the impact of COVID-19 in the hospitality sector, with closures denting demand," said analyst Caroline Bain from Capital Economics.

According to her, COVID vaccines rollout and lifting of containment measures will be key to the market.

The pandemic has reduced grindings to as much as 10% compared to last year as out-of-home consumption of chocolate fell strongly.

But even if vaccination allows for a recovery in the hospitality sector, a large surplus will be left after that, the analysts said.

The poll with 12 market participants saw a supply surplus of 218,000 tonnes in 2020/21 versus a much smaller surplus of 19,000 tonnes in 2019/20 estimated by the International Cocoa Organization (ICCO).

"Origins are behind on selling and the current market dynamics does not encourage (industry) buying early," said an industry source.

Poll participants also cited as a bearish factor in the market the $400/tonne living income differential (LID) introduced last year by top producers Ivory Coast and Ghana, which led some consumers to be more conservative in their buying, helping to boost stocks at origins.

Cocoa production in number 1 grower Ivory Coast was seen at 2.17 million tonnes in 2020/21, compared to 2.1 million in 2019/20, while output in number 2 producer Ghana was seen at 879,000 tonnes versus 800,000 tonnes in 2019/20.