Cocoa futures set course for what would be their highest close in nearly two months after a survey showed global stocks of the bean smaller than had been thought – a finding Rabobank could send prices up a further 10%.
New York cocoa futures for March stood up 1.7% at $1,993 a tonne in late deals, returning back within an ace of their 200-day moving average, and taking gains so far in 2018 so far above 2018.
While many agricultural commodities have found support merely from weakness in the dollar, which makes dollar-denominated exports more affordable, sterling-denominated prices rose too in London, adding 2.0% to £1,383 a tonne, despite further gains in the pound.
The gains followed the results of a review by a panel of experts of an annual International Cocoa Organization stocks survey– with the review finding that inventories at the start of the current 2017-18 season significantly smaller than the number that the organisation has been working with.
Less cocoa than thought
The working group, “taking account of the level of world cocoa bean stocks identified by the ICCO survey and additional market information, estimated that world cocoa bean stocks increased by 144,000 tonnes [over 2016-17] compared to the previous year”, an ICCO statement on Friday said.
“This result reflects a cocoa supply surplus smaller than the one published by the ICCO in its latest quarterly bulletin”, in November, which showed inventories rising by 335,000 tonnes over 2016-17.
While published North American data showed inventories there rising by 106,000 tonnes over the season, to 291,000 tonnes, carryout stocks in European warehouses were pegged down 51,238 tonnes year on year, at some 848,000 tonnes.
The working panel’s review “led to the conclusion” that the ICCO survey results had underestimated stocks, seeing an expansion in “invisible” inventories held in locations not responding to the poll.
Much of this “invisible” inventory was in Asia, prompting the ICCO to calls for talks with the Cocoa Association of Asia over boosting transparency in stocks data.
However, Rabobank said that even taking into account the potential for “generous stock increases” in areas besides the US, in the likes of Cote d’Ivoire, its calculations showed a 2016-17 inventory rise well below the ICCO’s official figure.
“We can envisage a larger stock increase” than the 144,000-tonne rise suggested by the expert panel, but however it cut the data the build was “always below 200,000 tonnes”, Rabobank analyst Carlos Mera said.
‘We expect cocoa futures to go up’
The bank added that the “surprising” drop in European stocks revealed by the panel was “very supportive” of prices in both London and New York.
Indeed, whereas cocoa futures fell some 15% in the three weeks following last year’s survey, which found more of the bean than had been expected, “this time we expect March New York cocoa to go up and reach $2,200 a tonne by the end of the January-to-March quarter”.
That represents “a jump of over 10% from current prices”, said the bank, which had forecast New York futures averaging $2,190 a tonne during the three months.
“We now perceive the market a little bit tighter than previously expected,” the bank said, flagging recent company announcements, from the likes of Barry Callebaut earlier this week, showing “surprisingly strong” world chocolate demand.