Cocoa prices will stay high for at least the next six months, thanks to production setbacks at a time of reviving demand, Macquarie said, forecasting three successive seasons of production shortfall.
Cocoa prices set a one-year high of $2,648 a tonne in New York, for the December contract, only to fall back to $2,602 a tonne as of 11:00 local time (16:00 UK time), down 1.0% on the day.
London cocoa for December stood down 0.8% at £1,708 a tonne.
However, according to Macquarie, this represents only a temporary setback, with prices to "remain well supported in the six-to-12 month period".
"While many may feel cocoa is overpriced right now, we see the need for cocoa prices to rise further," Macquarie analyst Kona Haque said, forecasting that New York futures will "need to stay at $2,500-2,900 a tonne into the fourth quarter".
Prices have not stood at $2,900 a tonne for two years.
The forecast reflects in part fears over the setbacks to production from well-documented lack of rainfall in Ivory Coast and Ghana, the top two producing countries, where the conditions are "said to be harming the growth of flowers and pods".
Ivory Coast output - which Macquarie estimated falling 30,000 tonnes to 1.02m tonnes in the 2013-14 marketing year, which starts next month - is also being undermined by a programme to evict farmers who have been illegally operating in protected areas.
Furthermore, dryness is holding back production too in Cameroon, where "young pods produced on some plants are drying and falling off because of a lack of rainfall," while too much rain is an issue in Nigeria.
Heavy rains have "hampered drying activity for the upcoming harvest, and sparked mould and other disease concerns", Ms Haque said.
'Running close to full capacity'
However, the bank warned over rising demand, with US processors "running close to full capacity" well ahead of the traditional high demand periods of Halloween and Christmas.
"The American grindings growth not only reflected the steady US economic recovery, but also reflected chocolate makers who were replenishing stocks and processed beans to meet rising overseas demand," Ms Haque said.
Meanwhile, processors' coverage of cocoa bean supplies has "fallen to uncomfortably low levels", -as non-commercial investors have tied up the supplies to be gained from futures markets, holding a historically huge net long position.
Hedge funds' net long in New York cocoa futures and options topped 65,000 contracts as of a week ago for the first time.
With supplies tight, "the industry is heavily reliant on liquidation of the non-commercial position if they wish to maintain or extend cover at levels lower than currently available, Macquarie said quoting a Marex Spectron caution that manufacturers may not be able to maintain cover during the
Already some European processors are no longer offering product for 2013 delivery, being deterred by high prices from ramping up grinding volumes.
The squeeze was also evident in high prices of cocoa butter, one of the main products of coco processing and the basis of chocolate, reaching ratios compared with values of unprocessed beans of 2.75-2.99 in the US,
That is up from a ratio of 2.44:1 a month ago, and from a low of 1.0:1 in April last year.
In Europe, the cocoa butter ratio has risen to 2.8:1 "on tight supplies".
Macquarie estimated the world production deficit at a modest 11,000 tonnes in the nearly-finished, 2012-13, rising to 173,000 tonnes next season, before easing back to 113,000 tonnes in 2014-15, for a total of some 300,000 tonnes over three seasons.
Marex last week pegged the deficit in 2012-13 at 161,000 tonnes, and at 134,000 tonnes next season.
Separately, Commerzbank said on Tuesday: "More and more observers are expecting to see the global cocoa market in deficit for the second consecutive time in the 2013-14 season.
"Even the 2012-13 season, which is just coming to an end, is supposed to close with a deficit that will probably significantly exceed the figure of 52,000 tonnes recently estimated by the International Cocoa Organization."