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Fitch cuts cocoa price forecasts, citing 'material' hit to chocolate demand


Fitch Solutions lowered its cocoa price forecasts, seeing potential for further declines in New York values, as the “material impact” of Covid-19 provokes a rare declines in world consumption of the bean.


The analysis group cut by $50 per tonne its forecast for average annual New York cocoa futures prices by up to $190, lowering its estimate for 2021 to $2,331 per tonne.


That implies potential for further weakness in prices, with the futures curve on Friday suggesting an average of about $2,380 per tonne.


The forecast is also below the market consensus forecast, as measured by Bloomberg, of prices averaging $2,600 per tonne next year.


For London futures, values were lowered by a more moderate $50 per tonne, with the 2021 average seen at a three-year low of £1,775, ahead of values investors are currently factoring in, although Fitch assumed a change ahead in the dollar-sterling exchange rate.


‘Improving supply prospects’

The revisions came as the analysis group revised to a 100,000-tonne surplus its forecast for the world cocoa production balance this season, and said it was now expecting a surplus of some 50,000 tonnes next season too.


Fitch cited in part “improving supply prospects in West Africa ahead of the 2020-21 harvest”, as officially starts in October, with the Cote d’Ivoire output estimate for next season pegged at 2.17m tonnes, up 21,500 tonnes year on year.


For Ghana, output next season was pegged at 876,960 tonnes, up nearly 65,000 tonnes year on year.


“In 2021, we anticipate production to rebound in Côte d’Ivoire and Ghana, driven by our expectation for better weather conditions and the implementation of the LID [living income differential] scheme,” which it is use cash raised from a levy on exports to support domestic producers.


‘Grindings have declined considerably’

However, Fitch too cited the damage to cocoa consumption from a coronavirus pandemic which has “led to a material decline in chocolate demand, especially for higher value products”.


“Having previously expected the cocoa market to tighten in 2019-20 due to slowing growth in Côte d’Ivoire and falling production in Indonesia and Ghana, we now anticipate the market to loosen as grindings have declined considerably in all major markets due to reduced demand.”


The forecast for consumption in 2019-20 was cut by some 160,000 tonnes to 4.75m tonnes, taking it 30,000 tonnes below last season’s level, the first year on year decline since 2016.


For next season, demand was seen showing a marked recovery, to 4.94m tonnes, although this is still some 70,000 tonnes short of the level Fitch had previously expected, in May.


Quarter-on-quarter gap

The group highlighted the marked downturn in cocoa grind data in the April-to-June quarter, after a buoyant first quarter.


“European grindings in the first quarter of 2020 were the highest first-quarter grinding figure ever at 373,000 tonnes, while Asian grindings in only slightly fell short of the first-quarter record in 2019.


“At the time, we took into account that this could be due to either greater consumer demand or processors pulling forward grindings to avoid supply chain disruptions.


“It appears to have been the latter, as second-quarter grinding figures released in July show significant declines.”


Although some recovery in demand for chocolate – “normally seen as an on-the-go purchase” – was expected in the second half of this year as air travel, and passenger traffic through airports, recovers, “we still anticipate global cocoa consumption falling in 2020 for the first time since 2016”.

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