Cocoa Seen Joining Commodity Losers as Crop Outlook Improves

(Businessweek) – Cocoa futures, down in New York today, are bound to rejoin most other raw materials that have dropped this year as the outlook for crops improves in West Africa, the world’s largest producing region of the beans.

Cocoa traded on ICE Futures U.S. is one of six raw materials that have gained this year as the Standard & Poor’s GSCI gauge of 24 raw materials declined. Rain in West Africa, which accounts for about 70 percent of world output, will help output to exceed demand by 11,000 metric tons in the 12 months started Oct. 1, forecasts London-based Kona Haque, an analyst at Macquarie Group Ltd. (MQG), Australia’s biggest investment bank.

Cocoa rallied 2.5 percent yesterday, joining natural gas, cotton, lean hogs, soybeans and oil as this year’s gainers in the S&P GSCI. The Dollar Index, which tracks the greenback against currencies of six U.S. trading partners, was near a one-month low yesterday after a report showed U.S. manufacturing contracted in May at the fastest pace in four years. The weaker dollar increased the attractiveness of cocoa priced in the U.S. currency as an alternative investment.

“The weakness of the dollar certainly helped the New York market to rally,” Jonathan Parkman, co-head of agriculture at Marex Spectron Group in London, said by phone today. “I can see no fundamental reason why cocoa should be a winner this year. At the moment, there isn’t an issue with weather, there isn’t an issue with crop development, there isn’t anything particularly positive about demand. So this season it looks as if we will end up close to a balance.”

Futures Fall

Cocoa for delivery in July fell 0.3 percent to $2,240 a ton by 7:05 a.m. on ICE, while the U.S. dollar index was little changed after gaining as much as 0.3 percent to 82.892 earlier today. The currency fell to as low as 82.428 yesterday, the least since May 9. In London, where the beans used in chocolate trade in pounds, futures for delivery in the same month declined 0.2 percent to 1,504 pounds ($2,302) a ton on NYSE Liffe. London cocoa gained 4.8 percent this year, while it added 0.2 percent in New York.

Cocoa bean deliveries to ports in leading grower Ivory Coast from the start of the season on Oct. 1 through June 2 were estimated 6.4 percent higher than a year earlier, according to KnowledgeCharts, a unit of Commodities Risk Analysis. Bean arrivals at ports were 1.249 million tons in the period, up from 1.174 million tons a year earlier, the data showed. Arrival figures were revised higher after a government report showed that deliveries in the first six months of the season were higher than initially forecast.

Cocoa Demand

There are already signs that slowing economic growth is denting cocoa demand. Bean processing in Europe, the main consuming region, dropped 3.9 percent to 339,377 tons in the first quarter, figures released by the European Cocoa Association in Brussels on April 17 showed. In Asia, grinding slid 11 percent in the same period to 140,062 tons, the lowest in at least nine quarters, according to data on the website of the Cocoa Association of Asia based in Singapore.

Ivory Coast’s central-western Daloa region, which produces about 300,000 tons a year, got above-average rainfall from May 11 to May 20, according to data from the country’s National Meteorological Service. Ivory Coast will gather 1.475 million tons of cocoa in 2012-13, the ICCO estimates. Farmers are harvesting the smaller of two annual crops known as the mid-crop.

“Current weather in the Ivory Coast is good and all areas are expected to receive at least some rain from time to time, but there are still several months to go with the mid-crop extending into September,” Arthur Liming, a futures specialist at Citigroup Inc. in Chicago, said yesterday in an e-mailed report. “Better follow-up precipitation will be needed by the end of the month.”

Arabica coffee for July delivery fell 0.5 percent to $1.2835 a pound on ICE. Robusta coffee for delivery in the same month slid 0.5 percent to $1,875 a ton on NYSE Liffe.

Raw sugar for delivery in July was unchanged at 16.43 cents a pound on ICE. White, or refined, sugar for delivery in August was little changed at $476.40 a ton in London.