Marex Spectron, highlighting record world inventories, sounded a bearish note on cocoa prices despite forecasting a production deficit ahead, and acknowledging the political uncertainty in Ivory Coast.
Cocoa prices soared in both London and New York in the last session after Ivory Coast's president, Alassane Ouattara, unexpectedly dissolved the government of the top cocoa-producing country, citing tensions within his coalition cabinet.
However, the London-based broker raised doubts over the severity of the threat posed to cocoa supplies by the shake-up, despite Ivory Coast accounting for more than one-third of world output.
"If the Ivory Coast can produce and export a record 1.7m tonnes during a civil war," which Mr Ouattara fought to claim his, elected, presidency last year, "a change of government would seem of little consequence," Marex said.
The broker also flagged the negative impact on prices of the surprise success of a revamp of Ivory Coast's cocoa marketing regime, which has introduced a single body for the selling the country's supplies - the Coffee and Cocoa Council - paying a fixed price to farmers in return.
Many investors had feared problems with the new system, given concerns over matters such over storage space and an apparent lack of scrutiny ovf bean quality, besides the risk of cocoa futures spiralling beyond the fixed payout price, incentivising farmers to renege on deliveries to the council.
In fact, the regime – aimed at protecting farmers from market volatility, and so encouraging investment – "appears to be working far more successfully than almost all imagined", Marex said.
"The farmers are supportive of the system, cocoa is flowing and quality seems to have improved."
Indeed, the reforms "may lead to both improved quality and increases in quantity in the medium term".
Marex, which while covering many crops is particularly noted for its cocoa research, also urged investors against drawing a bullish view on prices from a forecast of world production falling 107,000 tonnes behind demand in 2012-13.
The forecast is higher than that from some other commentators, including a Barclays Capital estimate of a 98,000-tonne deficit.
However, it included a "very cautious view" of output from West Africa mid-crops "due to the unusual rainfall patterns in recent months".
Marex pegged the Ivory Coast mid-crop at 300,000 tonnes, the lowest for at least five seasons, and down from 361,000 tonnes in 2011-12, noting an extended period of dry weather before the arrival of rains in late September.
"Should the mid-crops turn out to be normal, it would become increasingly hard to argue that the cocoa market is in structural deficit."
Furthermore, the group highlighted that world inventories ended 2011-12 at a record-high 2.12m tonnes, equivalent to 56% of demand.
This is the highest stocks-to-use ratio – a key pricing metric – since 1989-1991, "when nominal International Cocoa Organization indicator prices were roughly half current levels".
And, "given the proximity of year end", speculators looked unlikely to lift their net long position, already at a historically high 29,686 lots for New York cocoa futures and options.
The dynamics "suggest a limited upside potential for the remainder of this year", Marex said, forecasting prices were "likely to fall" to a level encouraging end-user buying.