Cocoa production looks set to fall behind demand once again next season, creating a "substantial risk" that prices of the bean will "move significantly higher", Fortis Bank Nederland said.

World cocoa output will rise by 6.0% to 3.58m tonnes in the crop year starting in October, helped by a long-term Indonesian investment programme which is seeing $350m spent on free fertilizer and disease resistant trees.

While consumption, which was badly dented by the global recession, will recover at less than half that pace, it will nonetheless beat production by 48,000 tonnes.

The deficit will leave global cocoa inventories, as a proportion of consumption, at 35% at the end of 2010-11.

The stocks-to-use ratio, which ended 2008-09 at 42%, is a key measure of market tightness, which is in turn a major indicator of pricing pressure.

Price risk 

"A substantial risk remains that cocoa prices will move significantly higher in the coming few months," Fortis said in a monthly report.

Adjusted for inflation, that peak was equivalent to $16,525 a tonne at today's prices.

"In real terms, prices were actually above today's levels for much of the period between 1959-87," the briefing said.

'Structural decline'

The main threat to price rises looked like "hard evidence" of spending on cocoa plantations in Ivory Coast, the world's biggest producer, where output is suffering from years of underinvestment.

"It is becoming clearer that production is as best stagnating and at worst facing a structural decline," Fortis said, forecasting a sharp fall in farmers' cocoa deliveries after a strong start to the main 2009-10 harvest.

"Ivory Coast is beginning to look as though it has reached a productivity ceiling of less than 1m tonnes for its main crop."

Besides some disease and weather setbacks, including a dry October, cocoa farmers in a country beset by political uncertainty have held back from replacing old, unproductive trees and forking out for fertilizer.

Run of deficits

A cocoa production deficit in 2010-11 would be, on the estimates of some analysts, a fifth successive year of output falling behind demand, beating a four-year run in the 1960s.

However, Fortis revised its estimate of 2008-09 dynamics from showing a small shortfall to a marginal surplus.

The report came ahead of the close of markets in New York, where March cocoa ended down 1.0% at a two-month low of $3,152 a tonne, and London where, cushioned somewhat by softer sterling, the March lot closed down 0.4% at £2,225 a tonne.