Cocoa futures – will 2015 bring a third successive year of gains?

(Agrimoney) – Cocoa was among the few agricultural commodities for which many analysts forecast rises this year, given expectations of world production shortfalls.

And while output has largely beaten expectations, futures indeed rose over 2014, for a third successive year, particularly in London, where depreciation of sterling against the dollar gave extra support to sterling-denominated prices.

Still, prices ended the year well below September highs, as concerns eased of a market squeeze.

Will this thinking bring fresh price declines in 2015, or will ideas of structural weakness in production keep futures on the upward path?

Commerzbank

“Future global cocoa production is highly uncertain, and the International Cocoa Organisation recently saw itself compelled to deny press reports according to which the future supply of cocoa was seriously jeopardised.

“But not even the ICCO was optimistic with regard to the supply in the next years.

“Only with a few years’ delay does it expect that production will be strong enough to satisfy current demand due to the fact that the higher prices are now increasingly trickling down to producers following political reforms in important producer countries.

“However, we agree with the ICCO’s view that the sufficiently high stocks will ensure that no shortage of supply occurs and accordingly that prices will not explode.”

J Ganes Consulting

“This year saw cocoa prices climb sharply and then fell back. Manufacturers were spooked by the media attention on Ebola and took precaution bulking up on purchases to assure themselves of not facing a shortfall if the worst case scenario of Ebola disrupting the Ivory Coast occurred.

“Now that the fear subsided, it becomes a bearish element as it leaves the market vulnerable to a further spill as those that bought forward aggressively no longer have the need to shore up stocks and will have already fulfilled their intermediate-to-longer term coverage sooner than normal.

“Cocoa grind was already pumped up with buy-ins ahead of announced price hikes and.

“The combination of these two factors, which caused buyers to secure additional supply earlier than usual, could now prove to be the market’s undoing and cause prices to unravel even further, absent any new worries about production prospects.”

Macquarie

“Fundamentally speaking, it appears that high prices will discourage demand as processing margins for some grinders appear to be moving negative.

“More optimistic production expectations released by the International Cocoa Organization and US Department of Agriculture reports may also imply that the spike in cocoa prices this year will incentivise higher use of inputs, improving yields.”

Rabobank

“Cocoa futures are expected to remain under pressure through 2015.

“The world cocoa supply-demand balance is projected to shift into a surplus of some 110,000 tonnes during 2014-15, after a neutral balance of 11,000 tonnes in 2013-14.

“Production is expected to grow by at least 3.5% year on year, to a record 4.4m tonnes.

“The demand outlook is relatively weak, with grinding expected to increase by a mere 1% to 4.3m tonnes. Declining European grinding is the main factor, as the economic recovery remains modest, and increasingly health conscious consumers are shifting consumption patterns.

“Butter ratios are also expected to decline, as elevated prices, along with low grinding and manufacturing margins, drive demand towards powder where possible.”