Commodities trader Olam International expects a third consecutive global cocoa deficit in 2014/15 will help to drive price increases of up to 10 percent, as demand growth out paces supply. Amit Suri, Olam's chief operating officer for cocoa, said: "2014/15 is still very early days, going by the trend on consumption and the global production trends we would anticipate a deficit."
Speaking on the sidelines of the World Cocoa Conference in Amsterdam, Suri said Olam had reduced the size of its 2013/14 deficit forecast due to larger-than-expected mid crops in top growers Ivory Coast and Ghana. "We had a grind deficit of 145,000 tonnes at the start of the season. That's become a bit smaller, our deficit is now 100,000 tonnes," Suri said.
Last month the International Cocoa Organisation (ICCO) forecast a global cocoa deficit of 75,000 tonnes in 2013/14, reducing the size of the shortfall from a previously projected 115,000 tonnes. Suri said the upward revisions to Ivory Coast and Ghana's output were partially offset by a reduction in production from other producers, mainly Indonesia, but also Cameroon, Nigeria and Ecuador.
He declined to give production estimates for Ivory Coast and Ghana except to say crops were clearly at record levels in both countries. Earlier on Tuesday the ICCO pegged Ivory Coast 2013/14 output at 1.7 million tonnes, while Ghana production was forecast at 900,000 tonnes. Suri said global 2013/14 grindings were expected to grow by around 3 percent, while consumption would rise 3.5 percent.
"I think cocoa has to be above 2,100 to 2,200 pounds for it to have an impact in terms of controlling the growth in demand. We do see it reaching those price levels in the next crop year, given that we have a view on a deficit eventually," Suri said. Liffe cocoa prices have risen around 13 percent since the start of the year to settle at 1,948 pounds per tonne on Tuesday.
Suri said in the near term he saw the London cocoa market remaining inside a range of around of 1,850 to 2,000 pounds although he expected there could be a pull back within that range as the market had recently become overbought. The world's third largest producer Indonesia was expected to see a fall in output, with Olam pegging the 2013/14 crop at 400,000 tonnes, down from around 450,000 the previous year. Suri said the decline was due to a combination of weather and output growth from Sumatra stalling, although production should revert to a base of around 450,000 tonnes in future.
"We were seeing very strong growth coming out of Sumatra which was compensating for the decline in Sulawesi," Suri said. "We think that's no longer the case, in fact, Sumatra seems to have topped out quite suddenly. We do see a resumption of interest in cocoa in Sulawesi." Last month Olam announced plans to invest $61 million to build a cocoa-processing plant in Indonesia, its second following an investment in Ivory Coast. "We wanted to set up a processing facility in Asia because that's where we see growth in the coming years," Suri said.
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