Markets 'underestimating' chance of higher cocoa demand

12.12.2016

Plummeting cocoa prices could spur demand, with processing margins at their highest level in years, analyst Judith Ganes-Chase said.

Ms Ganes-Chase said market were 'underestimating' the scale of current cocoa processing, suggesting the size of this year's market surplus may less than thought.

Cocoa prices in New York are plumbing their lowest level in over three years, under pressure from the big crop in West Africa.

"More and more observers are expecting to see a sizeable oversupply in the current 2016-17 crop year," said Commerzbank on Friday.

Markets in 'tailspin'

Prices are down nearly 30% since mid-August.

"There has been little information to suggest the crops will fall short of projections and this has certainly put the market in a tailspin," said Ms Ganes-Chase.

"Prices paid to farmers should be excellent and that also argues for better production this season."

Potential for higher consumption

But Ms Ganes chase warned of "assuming big crops in cocoa should result in oversupply".

She suggested that as prices fall "very attractive processing margins will push up grind sufficiently to absorb much of what otherwise would be excess cocoa beans".

"I believe the market is underestimating the utilization of the beans and therefore, the looming surplus seems far greater than what it may prove to be."

"The weaker the market is actually, the more likely this situation will prevail," Ms Ganes chase said.

"Prices are not only outright lower by a significant amount but the processing margins are the best in several years. "

Prices plumbing multi-year lows

Still, there is no sign of the sell-off ending just yet.

March cocoa futures in New York were down 2.7% in morning deals there at $2,209 a bushel, the lowest level for the second-month contract since July 2013.

March cocoa future in London were down 2.6%, at £1,777 a tonne, the lowest level since January 2014.


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