However, stable election results at the Ivory Coast, the world's largest cocoa supplier, could “cool cocoa prices” said Rabobank in its recent Agri Commodity Markets Research report.
If a leader is declared peacefully, the global cocoa market is likely to shift lower in the coming months amid higher production, said the bank.
Rabobank said: “The uncertainty with the nation’s political climate has injected some risk premium into the cocoa market and spurred many users to cover supply.”
The Ivory Coast had until midnight Wednesday to release the results of its Sunday's election. However, the deadline was missed last night and the country is still awaiting the results.
A market analyst for Rabobank told ConfectioneryNews.com, “The market seems to have shrugged off the delayed results focusing instead on the fundamentals, the supply and demand dynamics in the market, and the better supply of beans expected this season.”
Drop in cocoa prices
According to the bank, cocoa prices have dropped 30 per cent on the London exchange since mid‐July, while the New York market is 13 per cent lower in the period, making cocoa the worst‐performing agricultural commodity in CY 2010.
“The futures market rallied through 2009 on lower output in West Africa but began falling in late January 2010,” reported Rabobank.
Prices are still considerably higher than the low hit before the rally, said the analysts, London values are 43 per cent up from the 2008 low, and 17 per cent higher than the five‐year average.
The bank said that demand for cocoa is expected to rise 3 per cent in 2010/11, after an increase of 4 per cent in 2009/10 and a fall of 7 per cent in 2008/09 when use hit a five‐year low of 3.5m tonnes.
Offsetting high prices
Demand in 2010/11 is expected to only reach the level seen in 2007/08 of 3.7m tonnes. Four seasons of cumulative zero growth came as the economic downturn led to less consumer demand for the product, and high prices prompted the use of cocoa substitutes
According to the analysts, chocolate makers destocked and blended cheaper substitutes such as palm oil and reduced product sizes to help offset the high values.
The bank said demand for cocoa remains slow. North American grindings rose 1.7 per cent to 120,495 tonnes in the third quarter of 2010, while European grindings are 4 per cent lower to 331,182 tonnes.
“Lower demand is bearish for the market but prices rose nevertheless in the previous two seasons” said the analysts.
This was due to the lower cocoa production in West Africa; a result of damaging weather. However, improved output for the 2010/11 season due to plentiful La Niña‐induced rainfall will “swing the world fundamental balance into surplus after two seasons of deficit”.
Furthermore, Rabobank said that recently released Ivory Coast data shows a surge of selling and increase in crops.
The analysts said that less smuggling through Ghana and stockpiling by growers have contributed to the surge in deliveries, which are now 412,00 tonnes since the season began in October, up 7.7 per cent from the same point in 2009/10.
In Ghana purchases are also up, running almost 40 per cent ahead of last year.
Output from the two nations, who account for 55 per cent of global production, looks large enough to move the market lower this season, said the analysts.
In the New York market, CFTC data shows that non-commercials reduced their net short position modestly ahead of the election, said Rabobank.
“Speculators had been holding a sizable net long position at the end of the Northern Hemisphere summer but liquidated when beneficial weather looked to help output in Africa If the election process ends smoothly, the non‐commercial net short will likely expand,” said the analysts.