Cocoa Rises to Multi-Year Highs on Supply Concerns

(Wall Street Journal) – Cocoa futures climbed Tuesday on worries about supplies of the chocolate ingredient, with prices settling above $3,000 a ton for the first time in 2 1/2 years.

Reports of sap-sucking insects attacking cocoa trees in Cameroon, which produces 5.7% of the world’s beans, underpinned expectations for global demand to outstrip production this year.

Dry weather in cocoa-growing areas of Brazil, the source of 4.7% of global production, is another point of concern.

“Any malfunction on the supply side will create some tension,” said Sterling Smith, a futures specialist at Citigroup in Chicago.

The International Cocoa Organization forecasts demand for cocoa will exceed global production by 115,000 tons during the season that ends Sept. 30, and has said it expects the market to remain in deficit for at least five years.

Cocoa for May delivery on the ICE Futures U.S. Exchange ended 0.7% higher at $3,006 a ton, the highest settlement since Sept. 2, 2011.

Futures had been trading sideways since popping above $3,000 a ton on Feb. 21, consolidating largely between that level and $2,900 a ton. But when the market cracked $3,000 again on Tuesday, buy stops, or pre-placed orders to buy futures when prices hit a certain level, were triggered, sending the market higher, traders said.

Arabica-coffee prices also rose, with the contract for May delivery climbing 1.1% to $2.0565 a pound, the highest settlement since Feb. 28, 2012.

Brazil, the world’s top coffee grower and exporter, is experiencing its worst drought in decades, prompting analysts to slash their forecasts for the upcoming harvest and pushing prices up 86% since the start of 2014. Additional dry weather there could crimp output further, traders and analysts have said.

“Brazil didn’t really quite get the rains we were looking for last weekend, and it looks like it’ll stay dry at least through the end of the week,” said Jack Scoville, vice president at Price Futures Group in Chicago.

Dry weather in Vietnam, the world’s No. 2 coffee grower and biggest producer of robusta, a more-bitter variety of coffee, was increasing concerns about supplies globally, Mr. Scoville said.

In other markets, orange juice for May delivery on ICE ended 0.5% higher at $1.5590 a pound, and raw sugar for delivery in May settled at 18.03 cents a pound, down 1% on the day.

Cotton for May delivery closed up 0.1% at 91.65 cents a pound, the highest settlement since Aug. 19.