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Will the sell-off in cocoa markets continue in 2017?

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Cocoa markets have been big losers in 2016, with New York markets on track to finish the year down some 32%.

The downward pressure comes from the prospects of a big harvest in West Africa, from where most of the world's cocoa originates.

So will the sell-off continue next year? Commentators offer their views.

Commerzbank

After a deficit in the 2015-16 season, a surplus is forecast for the global cocoa market in the 2016-17 season, which began in October.

There has been a recent upturn in deliveries to ports slightly in the Ivory Coast. On aggregate, they are still down year on year, but this is unlikely to be the case for long.

The mid harvest as of next spring, in particular, should be considerably larger than the last.

The same is true of Ghana, the second-largest producer.

That is because in West Africa, which accounts for 70% of cocoa production, the Harmattan wind, which caused severe damage in 2015-16, is now expected to be mild.

At the same time, the long and steady rise in prices up to a 6-year-high of £2,500 a ton has affected demand.

In some instances, there is already talk of another surplus in 2017/18.

[…]

Consequently, it will no doubt be difficult for prices to return to the high of this summer in the near future.

[As of the summer], short-term market players have been scaling down their many net long positions rapidly, and are now holding record-high net short positions.

Many factors reported that have a negative impact on prices have thus already been factored in.

Pressure could increase again, though, if more net short positions are built up.

We expect a cocoa price in London in the last three months of 2017 of £1,900 a tonne.

Rabobank

After a large deficit in 2015-16, which we calculate at 220,000 tonnes, 2016-17 may see a commensurate surplus, probably followed by a second surplus in 2017-18.

We expect very good main crops in West Africa in 2016-17, and as of now, we have every reason to believe in a full recovery of the mid-crops.

It is extremely unlikely that we will have harmattan winds anywhere as strong as last year.

[…]

Assuming normal weather for the mid-crops and considering the good rainfall seen over the last six months in West Africa, our initial expectations are for Cote D'Ivoire to produce 1.82m tonnes in 2016-1-, whereas Ghana may go back up to 86,000 tonnes.

[…]

Demand has been lacklustre through 2016. However the volume sales of chocolate are stabilising in Europe and especially in the US.

In addition, we believe that sales of chocolate and chocolate-flavoured products may be doing rather well in Asia.

Rabobank forecast cocoa prices in New York to average $2,620 a tonne in the last three months of 2017.

FocusEconomics

Cocoa prices have continued to fall in the past month.

Array

Q1 2017: $2,827 a tonne

Q2 2017: $2,818 a tonne

Q3 2017: $2,833 a tonne

Q4 2017: $2,827 a tonne

Forecasts for New York spot contract, based on consensus view of analysts

The downward trend is being fuelled by expectations of increased production in West Africa, thanks to improved weather conditions, and South America, where crops are recovering.

However, recent government-mandated price hikes in the Ivory Coast and Ghana are likely to temper the decline in global prices.

For the last three months of 2017, analysts forecast [a price] of $2,837 per tonne.

By William Clarke

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