The International Cocoa Organization (ICCO) has issued its first forecasts for the 2019-20 cocoa year. It has also revised its estimates for the global balance for 2018-19.
It puts the global deficit for 2019-20 - world gross production of 4.824m tonnes minus global grindings of 4.861m tonnes - at 85,000 tonnes. It estimates that the ending stocks/grindings ratio for 2019-20 will be 31.5%, almost 2% lower than that for 2018/19.
If correct - and there is still much to play for this season - this will be second successive season to record a deficit. And it ought to set a firm, high price for cocoa futures.
This deficit is lower than last year but...
The ICCO’s revised estimates for the 2018-19 season have increased last year’s deficit by 86,000 tonnes, to 107,000 tonnes, and reduced the end of season stocks/grindings ratio by 1.8% to 33.6%.
The implication of this is that the world is heading not just for another cocoa deficit in 2019-20, but will have shrinking stocks to draw on.
The ICCO’s estimates for the 2019-20 season are likely to be revised in the coming months and almost certainly production will be cut.
The ICCO says that "total cocoa production for the current 2019-20 season is likely to be affected by less than favourable weather conditions and outbreaks of diseases in the Wet African region, which is the main supplier of beans globally."
How much will Covid-19 cut demand is an open question
These estimates from the ICCO were inevitably drawn up prior to the Covid-19 virus spreading and taking a real grip. Manfred Hübner, the managing director of the German-based Sentix, which conducts polls of German investors on their opinions of 10 different markets, said on Monday: "The global spread of the new coronavirus is plunging the world economy into recession."
Cocoa demand - in the form of chocolate - cannot remain completely impervious to this rapidly-developing situation.
So while cocoa supply/demand fundamentals suggest strong futures’ prices, shrinking overall economic activity may well hold them back, at least in the short-term until we have a more stable picture.