Barclays Capital has countered waning expectations for a
deficit in world cocoa production, citing indicators of firm demand besides production
setbacks, most lately to plantations in flood-hit Nigeria.
Marex Spectron last week, while pegging the shortfall in world
cocoa output in 2012-13 at 107,000 tonnes, cited the potential for a lower
number, flagged that its estimate included a "very cautious view" of output
from mid-crops in West Africa, the major producing region.
And on Wednesday, Cargill's managing director of cocoa and
chocolate, Jos de Loor, forecast "more or less" a balanced supply of cocoa,
citing the impact of rains in improving prospects for crops in West Africa.
However, Barclays Capital took a more gloomy view of output
prospects, noting that rains in Nigeria had proved excessive, leaving the
fourth-ranked producing country with its worst flooding in more than 40 years.
Indeed, the Cocoa Association of Nigeria has forecast a 20%
drop to 200,000 tonnes in domestic output, well below the increase to 300,000
tonnes that had been hoped for earlier in the season.
In top producer Ivory Coast, arrivals of beans at ports had fallen
to 236,000 tonnes so far in 2012-13 as of Sunday, a 19.5% decline on the same
period last year, while in second-ranked Ghana, purchases by regulator Cocobod
had tumbled 31% to 209,400 tonnes as of November 8.
Meanwhile, demand, while soft in the West, had proven strong
from Cameroon so far, near-doubling to 12,000 tonnes, and Malaysian officials
said the country's cocoa processing capacity may double to 360,000 tonnes next
year to meet Asia's growing appetite.
"We expect less-than-favourable weather causing production
setbacks in key producers, coupled with strong grindings data in key producers
such as Cameroon and Malaysia, to widen the deficit," BarCap analyst Kate Tang
The bank lifted by 10,000 tonnes to 108,000 tonnes its forecast
for the shortfall in 2012-13.
Target in doubt
The comments come amid a tricky time for cocoa investors, juggling
not just the variety of opinion of world supplies, but the changes in demand
and grinding dynamics.
While processing is seen switching from Western countries
closer to bean-producing countries, enabling grinders to exploit lower
overheads and cut down on transport cuts, Ivory Coast was this week revealed to
be ditching a tax break on cocoa products, so threatening a move in processing
"This is likely to make cocoa grinding in Ivory Coast less
attractive," Commerzbank said.
"It seems questionable whether Ivory Coast will be able to
meet its government's ambitious target to have half of domestic cocoa
production ground in the country by 2015."
Butter vs beans
Meanwhile, prices of cocoa butter - one of the two main
products, with powder, of grinding cocoa – have extended a recovery from levels
this year at which they traded at levels close to parity with values of raw
beans, the weakest ratio since at least the 1990s.
The ratio, which topped 3.0 in 2005, has recovered to some
1.7-1.8 times, reflecting weak inventories at a time when demand is being
whetted by the prospect of Christmas, Valentine's Day and Easter, all periods
of strong chocolate consumption in the West.
Cocoa butter is a key ingredient of quality chocolate, with
powder used in the likes of biscuits, drinks and ice cream.
The cocoa powder ratio has dropped from levels close to 2.5
times the price of raw beans at the turn of the year to well below 2.0 times.