Global cocoa prices soar on short supply
AMSTERDAM (Commodity Online) : Global cocoa prices remained higher this year and is likely to scale new heights, analysts said.
Benchmark cocoa closed Friday in London at its highest for 32 years. July lot, closed up £23 at £2,359 a tonne, its highest since 1977. The spot May contract added £23 to £2,328 a tonne, £12 from a similar achievement.
According to Fortis Bank Nederland, the cocoa market faces a serious structural deficit in production, which will take prices to a series of record highs, unless farmers expand plantations, and avoid the temptation of getting into rubber.
Cocoa production looks set to return to surplus, of 21,000 tonnes, in 2010-11, as higher prices encourage farmers, particularly in Africa, to improve husbandry and raise fertilizer applications, the bank said.
However, the sector needs considerably faster improvement to knock prices from a trajectory which with fits and starts along the way, is headed upwards and could see them soaring to fresh records over the next few seasons.
That a structural deficit is approaching, barring some truly radical and rapid supply boost, is undeniable, the bank said.
Cocoa plantations needed expand at a rate of about 100,000 hectares a year to avoid such a shortfall.
However, farmers in Ivory Coast, the world's biggest producer, have for years been discouraged by political instability from expanding or replanting. Many trees are more than 30 years olds, way past peak potential.
And even growers prepared to invest in plantations, in Ivory Coast or elsewhere, may be tempted to switch to rubber, a crop which can provide year-round income, is less prone to disease and whose price have also soared.
Tokyo's near-term May rubber lot added 4.0 yen at 424.50 yen on Monday, a contract high - if below the record for a spot contract of 472 yen reached by the April lot before it expired on Friday.
As of today, the crop that current cocoa famers might opt for, if they are considering expansion, would appear to be rubber rather than cocoa, the bank said.
Besides soft Ivory Coast production, the cocoa market has also been squeezed by a recovery in consumption evident in strong grindings in both Europe and North America, and by a dearth of sales by producers in a period between the Ivory Coast's main and mid crops.