Cocoa prices ease amid raised output hopes

12.10.2016

New York cocoa futures, which in the last session plunged to the lowest level in three years, turned south again on Tuesday, as investors focused on stronger production prospects, and amid nerves ahead of key data.

Cocoa futures for December lost early resilience to stand down 0.9% at $2,633 a tonne in late morning deals in New York, amongst the lowest level for a spot contract in three years.

The losses - which followed a slump in values of more than 5% on Monday – reflected continued ideas of improved growing conditions in West Africa, which is responsible for roughly two-thirds of world cocoa output.

'Record production'

"Record global production is expected this year," said Jonathan Parkman, head of agriculture at Marex Spectron, contrasting the upbeat prospects with last season's drought-hit West African result.

"The deficit last year was the largest ever seen," he said.

Rainfall is expected to help West African output make a strong recovery in the year ahead, although the harvest has temporarily been affected by the precipitation – including that in top producer Cote d'Ivoire, where growers are also being encouraged by raised fixed prices for beans.

"The set farmer prices in Ivory Coast are at the highest level it's been," said Mr Parkman. "And it's rising consistently."

Data ahead

Traders are also awaiting European cocoa grinding data for the July-to-September quarter of 2016, to be released on Wednesday.

The median estimate of a Bloomberg survey is a year-on-year increase in processing volumes of 3.2% to 344,000 tonnes.

"This can only be interpreted as a sign of strong demand to a limited extent," said analysts at Commerzbank.

Following rough weather conditions in West Africa in 2015-16, the dwindling supply of cocoa beans meant that grinding activity was stepped down there and expanded elsewhere, using cocoa stock.

"The sharp rise in the ratio between the cocoa butter and the cocoa bean price also provided an additional grinding incentive," in boosting processing margins, they said.
 

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