Cocoa futures appear to be at little risk of returning to the nine-year lows reached last year, supporting by "production risks" at a time when processing margin dynamics appear "very attractive" for processors.
Judith Ganes-Chase, the respected soft commodities analyst, said that cocoa futures, having recovered some 17% in New York on a spot contract basis from last year's lows, seem "to be building a solid base of support".
While acknowledging a "massive" world output surplus in 2016-17 - when production hit a record 4.70m tonnes, 371,000 tonnes above consumption, on International Cocoa Organization estimates – some of that "simply" went to replenish run-down inventories, Ms Ganes-Chase said.
Furthermore, much of the record harvest was of poorer quality crop, meaning that "availability of good quality beans was nowhere near as abundant as the statistics show".
And heading into the 2017-18 crop year, which began this month, Ms Ganes-Chase, head of J Ganes Consulting, flagged "production risks", including in West Africa, which is responsible for the vast majority of world output, and which looks set for a modest drop in volumes this year.
"There was a bout of excessive rains and flooding in the Ivory Coast and above-normal rains in Ghana that could impact the main crop and had even raised concerns about black pod disease."
Furthermore, the Indonesia, "the third largest producer, is expected to see production fall yet again".
The prospect of some output "uncertainty" was coming a time when "time when demand potential remains quite strong", helped by prices which remain low by standards of recent years.
Spot December cocoa futures stood at $2,080 a tonne on Monday, down 0.3% on the day.
The so-called "combined ratio" – the ratio of the value of cocoa butter and power, the main processing products, compared with the price of raw beans – has eased back somewhat over the past month, "from a peak of 3.83 to 3.76", Ms Ganes-Chase said.
"However, this remains considerably above year ago levels when the ratio was around 3.38, making this still a very attractive price for processors to convert beans into productions at a faster rate, pushing up cocoa grind."
By Mike Verdin