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World cocoa supplies 'could hit tightest since early 1980s' next season


Rabobank joined commentators upbeat on cocoa price prospects as it forecast a marked drop in Cote d’Ivoire production next season, driving the globe into a hefty production shortfall.


The bank raised above $2,500 a tonne its forecasts for quarter-average New York cocoa futures prices into late 2020 – now seeing them average $2,550 a tonne for the October-to-December period.


That compares with the $2,522 a tonne that the December lot was trading at Tuesday.


For the July-to-September quarter of 2020, the price forecast was raised to $2,600 a tonne, ahead of the $2,540 a tonne being priced into the September 2020 lot, although in line with an upgraded Goldman Sachs forecast made two weeks ago.


‘Lowest stocks-to-use since early 1980s’

Rabobank, like Goldman Sachs, and indeed Marex Spectron last week, highlighted the support to values from a pact between Cote d’Ivoire and Ghana, the world’s top cocoa producers, not to sell below $2,600 a tonne.


While noting that little was known of the details of the deal, Rabo said that “some sales have been withheld at lower prices”.


Furthermore, it forecast in 2019-20, which starts in October, a return to a world production shortfall for the first time in four years – and of a substantial 150,000 tonnes.


Although acknowledging that it was “still early days” to forecast West African output next season, the bank said that “relatively bad weather in Cote d’Ivoire, combined with years of low prices, could result in a relatively sizeable production drop of about 8-10%.


“Such a drop combined with increasing consumption, could result in the lowest level of stocks-to-use since the early 1980s.”


‘Feasting on chocolate’

This would indeed imply the potential for price support, with the stocks-to-use ratio viewed as a key indicator of the level to which buyers will have to pay up to cover supplies, with a low ratio signalling increased prices.


In fact, “higher prices may seriously slow consumption” before it takes the stocks-to-use ratio to such low levels, “bit at the moment consumption numbers continue to surprise.


“Actually the world has been feasting on chocolate at an incredible pace for the last three years,” Rabobank said, forecasting further growth in global grindings of 3% next season.


‘Below-average rainfall’

Separately, ADM Investor Services also raised concerns over Cote d’Ivoire output prospects, noting that “there has been below-average rainfall over West African growing areas during the past month, and that has been reflected in weekly… port arrival totals that have fallen below last year’s results”.


Cocoa arrivals from producers to Cote d’Ivoire ports came in at 22,000 tonnes in the last week of June, for instance, below the 24,000 tonnes a year before, according to Reuters, although 2018-19 volumes overall are still up 11% year on year, at 2.10m tonnes.


“If there is not an uptick in precipitation during July, it is likely that next season’s main crop production will fall below this season’s total,” ADM Investor Services added.


Coffee, sugar outlooks

Rabobank was less upbeat on coffee standing by forecasts of New York arabica prices averaging 106 cents a pound in the last three months of 2019, below the 115.55 cents a pound the December contract was trading at on Tuesday.


“If arabica prices go up more than we forecast, robusta will follow – but at a distance, with an increasing arbitrage,” the bank added, noting “strong” production in the three key robusta-growing countries of Vietnam, Indonesia and Brazil.


For sugar, the bank stuck by ideas of prices averaging 13.60 cents a pound in the fourth quarter, an outlook ahead of the futures curve, which does not see this value being reached until the middle of next year.


The bank said that in India, a drop in production in 2019-20 exacerbated by a late monsoon “will probably result in no export subsidies given for the coming season”, limiting pressure from shipments - which Marex has estimated at up to 6m tonnes.


Regarding Brazil, Rabobank also said that the sugar market had been “very complacent” in keeping prices at levels which are “incentivising Brazilian mills to maximise ethanol production to the detriment of sugar”.

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