Cargill is forecasting a global cocoa deficit of 160,000 tonnes for the 2015/16 season after smaller-than-expected mid-crops from dominant West African producers Ivory Coast and Ghana, its head of cocoa trading said on Friday.
Overall cocoa supplies, however, remain good – boosted by a global surplus of 170,000 tonnes in 2014/15 (October/September), with potential for a “substantial” surplus in 2016/17.
“We had a period of six weeks in January and February when it hardly rained and that impacted the mid-crop in Ivory Coast and also in Ghana,” Martijn Bron told Reuters in an interview.
“For us this (poor mid-crops) is the reason to now forecast for a whole year a fairly decent deficit.”
Bron said the drought had also reduced bean size, making them harder to process and reducing their fat content. The Ivory Coast’s Coffee and Cocoa Council (CCC) also bans exports of small beans.
“Because these beans are small they will be retained up country because they cannot be exported easily and they cannot be processed easily. We think a lot of these beans will be blended into next year’s main crop,” he said.
“Every year you have that but this year we expect more retention due to the small beans, which amplifies the deficit through the summer.”
Bron said the size of Cargill’s forecast 2015/16 deficit is smaller than some other market participants as it expected the global grind to fall by between 0.5 percent and 1.0 percent.
Some others are expecting the grind to rise.
“We think that is not realistic given sluggish demand for cocoa products in emerging markets which were supposedly the growth engines for the cocoa industry and everyone sees the economies of these countries is not great,” he said.
Bron said Cargill was expecting production to rebound in 2016/17 with a substantial global surplus anticipated.
“That is based on the (very good) pod-set we see right now and assuming normal weather which is supported by most weather modelers,” he said.
“It will also be very difficult for demand to really rebound very strongly (in 2016/17) knowing we are still in a somewhat subdued economic environment,” he added.
Bron said overall cocoa supplies were good following the surplus in 2014/15, with overall combined certified stocks for London and New York futures around a five-year high.
He noted, however, that London cocoa futures were trading at inverses with nearby prices at the premium to forward months.
“Inverses are a reflection of the fear factor of a sizeable deficit and forward selling by Ivory Coast and Ghana which creates more selling pressure on the back end,” he said.
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