Cocoa Prices Rise to Three-Year High

(Wall Street Journal) – Cocoa prices rose to the highest level in three years after reports of demand for the chocolate ingredient surpassed expectations.

Cocoa for delivery in September ended Wednesday at $3,185 a ton, the highest closing level since July 7, 2011, on the ICE Futures U.S. exchange. The September contract gained 1.7% for the day, the biggest daily percentage gain in almost four weeks.

It was the fifth consecutive session of gains for cocoa prices after demand in North America and Asia beat analysts’ expectations. Cocoa processors in Asia ground 161,805 metric tons of beans in the second quarter of the year, up 5.2% compared with the same period of 2013, the Cocoa Association of Asia said Friday. The report followed a 4.5% increase in North American second-quarter cocoa grindings, which topped market estimates of 2% to 3%.

“The demand picture is looking so much better after last week’s Asia and North American numbers,” said Hector Galvan, a senior market strategist at RJO Futures. “The sky’s the limit right now. Any issues with West Africa [production] could take us up to $3,250 and $3,300 a ton.”

West Africa is the source of more than two-thirds of the world’s cocoa.

Cocoa processors are ramping up production ahead of Halloween and Christmas, when chocolate consumption is high. Processors buy beans to make cocoa powder, butter and other products which companies use to make chocolate and other confections. It takes months for chocolate to hit store shelves, so processors and chocolate makers often purchase raw materials far in advance of peak demand.

“We’re coming into a period where demand for chocolate is going to be higher,” said Sterling Smith, a futures specialist at Citigroup. “Processors are going to be a little bit more aggressive.”

In other markets, arabica-coffee futures jumped 4.9% to end at $1.7660 a pound, near a four-week high, as forecasts for rains in top grower Brazil stirred worries of premature flowering of coffee trees.

July is the heart of the harvest and usually a dry time of year in Brazil’s main coffee-growing areas. Unseasonable rains could cause trees to flower early, but if dry weather returns, the trees would abort the flowers. A weak flowering would mean a smaller amount of coffee beans will be produced.

“If it rains and stops and rains, this kind of pattern, we have some potential problems,” said Rodrigo Costa, an analyst at brokerage Newedge. This is causing some traders to get out of their bets on falling prices, he said.

Orange-juice concentrate for September delivery fell 0.6% to $1.5250 a pound, while October raw sugar fell 1.2% to 16.96 cents a pound, ahead of a closely watched report on the amount of sugar produced by Brazil’s main cane-growing region in the first half of July. The report from Brazilian sugar industry group Unica is due this week.

Cotton for December rose 0.3% to 68.08 cents a pound.