However, the bank expects prices will pick up in the longer term.
Prices may not rise above $2,000 per MT in short term
“We are actually very bullish in cocoa due to strong demand. But in the short term stocks are very high, so the market needs to ‘eat’ some of those stocks first,” Carlos Mera, a commodities analyst at Rabobank, told ConfectioneryNews.
In its latest Agri Commodities report, Rabobank reduced its cocoa price forecast. It expects cocoa prices will not go far beyond $2,000 per metric ton (MT) until the first quarter of 2018.
Cocoa prices were at a 10-year low on the New York market ($2,082 per MT) and a four-year low on the London (£1,678 per MT) market in Q1.
Both markets are expected to have dipped even lower in Q2 (see table), and are forecast to be fairly static for the ensuing three quarters.
High cocoa stocks and strong chocolate demand
The International Cocoa Organization (ICCO) forecasts cocoa stocks for 2016/17 will be +27.3% greater than the previous season.
Cocoa arrivals to Ivorian ports were at 1.94m MT from the start of the season (October 2016) to August 20 this year – compared to 1.54 MT in the comparable period last season.
This comes amid “strong chocolate demand around the world”, according to Rabobank’s report.
Chocolate volume sales in the US – the world’s largest confectionery market - were up +1.4% in the last 52 weeks and +2.8% in the last four weeks, IRI data indicates.
Strong chocolate demand means cocoa prices will eventually increase, says Rabobank.
“The further we go in time, the more bullish our forecast gets,” said Mera.
The bank estimates cocoa prices will start to grow more substantially from Q3 2018 to reach $2,100 in New York and £1,650 in London for the quarter.
- NGO The Voice Network has previously said this year’s drop in cocoa prices will drive farmers deeper into poverty. It recommends individual companies pay a flexible premium that guarantees a living income for cocoa farmers and their dependents, while it is pushing national governments to set higher farm gate prices.
- Uncommon Cacao recently alleged the chocolate industry’s focus on productivity and yield increases in cocoa sustainability plans led to a production surplus, a fall in prices and created a reduced market for farmers to sell their beans.
- Leading Ivorian cocoa farming cooperative ECOOKIM previously encouraged the chocolate industry and traders to commit to long-term sourcing agreements with coops for a minimum of three years.
From deficit to surplus
Mera said the cocoa market had moved from a deficit mind-set a year ago to a large surplus.
The ICCO forecasts a production surplus of 382,000 MT for the 2016/17 season, following a deficit of 197,000 MT last season.
“A few factors contributed to this. Côte D’Ivoire significantly increased the prices paid to farmers, incentivizing a very good treatment,” said Mera.
“Also at the same time, many new trees in Côte D’Ivoire came to productive age. Meanwhile, Ghana resumed its extension services a couple of years ago and the results meant a very good recovery of production.
“Cocobod [the Ghanaian cocoa regulator] usually distributes fertilizer and provides expertise through a network of agronomists in Ghana but around 2014/15 they stopped (which was responsible for a drop in production), but this past crop 16/17 already saw a very good recovery, better than previously expected,” he said.
Cote D’Ivoire lowers prices
In late March this year, Ivorian regulator Conseil Café Cacao (CCC) lowered guaranteed farm gate prices for dried and fermented cocoa for the 2016-17 season.
It continued to fix farm gate prices at 60% of the futures price for cocoa in London. But since the London market fell significantly, the producer price dropped -29%, from CFA 1,100 per kg ($1.81) to CFA 700 per kg ($1.29).
Ghana ups prices
However, farmer prices in Ghana have increased.
In June this year, Ghana raised its producer price from 6,800 Ghana Cedis ($1538) per MT to 7,600 Ghana cedis ($1,719) per MT for the current crop year (October 2016 to September 2017).
Cocobod's Producer Price Review Committee upped the price following discussions between farmers and other stakeholders.
The price is based on farmers receiving at least 70% of the Free On Board (FOB) price rather than on a percentage of the London market price as it is in Côte D'Ivoire.
Noah Amenyah, senior public affairs manager at Cocobod, said the FOB/export price - unlike the London market - has remained flat.
"The FOB price in Ghana has not declined yet because we have a stabilization fund. So in times when the world market price is bad, the stabilization fund comes to [farmers’] support." he told this site.
Increased grinding capacity expected in Ghana
Cocobod licenses buying companies (LBCs) - such as Cargill - to export beans, but a company outside Ghana cannot export directly.
LBC's can motivate farmers by paying a higher producer price than Cocobod's guaranteed price.
Cocobod is looking to support local cocoa processors as it aims to process at least 50% of its cocoa production domestically.
Ghana currently processes around 30% in-country, with Barry Callebaut being the largest grinder by volume.
"Now, a number of cocoa processing companies are coming on board...A number of companies - Dutch, Chinese and Iranian - have shown interest and we are also revamping West African Mills (WAMCO) , one of the oldest factories in Ghana,” said Amenyah.
WAMCO, a cocoa processor jointly owned by German firm Hamester ( 60%) and Cocobod (40%), was liquidated last year, but will now be revitalized.