Cocoa Traders Await Price-Moving Demand Indicators

(Wall Street Journal) – A big two days is coming up for cocoa, with price movements likely if closely watched demand indicators out of Europe and the U.S. this week come in at or above expectations.

Grindings data, which measure the amount of cocoa beans processed by chocolate makers, for the final three months of 2013 are due Wednesday from the Brussels-based European Cocoa Association and Thursday from the Washington-based National Confectioners Association.

Viewed as a barometer of demand by the chocolate-making industry, that is worth $117-billion by sales, these will be pored over for clues as to whether the commodity will continue its strong run in 2014.

Cocoa futures gained 22% in value on NYSE Euronext in 2013, outperforming all others on global markets in a year when prices of other agricultural commodities came under pressure because of ample supply.

Should the data surpass expectations some analysts predict that prices could climb as much as 15% from current levels.

Nine analysts and brokers surveyed by The Wall Street Journal said they expect European cocoa grindings for the fourth quarter to come in 3% to 5% higher than the same period a year earlier, with the North American grind to come in at a range of between 4% and 8% higher. Europeans alone consume 40% of the world’s cocoa each year.

Given that analysts are already estimating a global shortfall of cocoa beans for the 2013-2014 crop year, any rise in the grind will drive a fresh pricing rally, said Edward George, head of soft commodity analysis at Ecobank.

Supply of beans during the 2013-2014 crop year will fall short of demand by 160,000 metric tons, according to estimates from the London-based International Cocoa Organization, citing growing demand for dark chocolate from U.S. and European consumers and poor harvests.

To be sure, some analysts and dealers said the bullish market seen in 2013 may not be repeated in 2014. Most recent data from Ivory Coast’s cocoa regulator show that arrivals of beans to the country’s main ports from the main exporting companies were higher than anticipated.

Analysts say a stronger pace of bean arrivals to Ivoirian ports signifies that more cocoa is available for export to international markets, thus bearish for prices.

Total cocoa bean deliveries at Ivoirian ports reached 932,000 tons by Jan. 5—some 29% up on the same date last season.

Still, some feel the strength of deliveries is misleading, with some traders worried that there could be a sharp slowdown over the coming months as the main crop draws to a close. The cocoa main crop season in Ivory Coast—the world’s number one producer of the chocolate-making ingredient—runs usually from October to March.

Cocoa futures traded on the IntercontinentalExchange are currently trading around $2,715 a ton, having hit a two-year high of $2,770 a ton Oct. 10 when the third-quarter European grind data showed a 4.7% on-year increase.