Global Cocoa Deficit Deeper Than Expected, US Stockpiles Hit 2009 Lows

Following a massive price surge in cocoa prices in New York earlier this year, where prices topped nearly $12,000 per ton before bottoming out in the low $7,000s and resulting in what technical analysts say is a triangle pattern, prices are expected to stay rangebound as compression indicates a major move nears. 

Bloomberg cites new data from the International Cocoa Organization that says demand will exceed production by 462,000 metric tons. That's about 5.2% more than the ICCO's May forecast of a 439,000-ton deficit. This is a much larger shortage than the initial outlook published in February. 

In the Friday report, ICCO wrote that global cocoa supplies remain depressed due to "adverse weather conditions, aged trees, pests and diseases that affected production in major cocoa areas during the season under review." 

Global cocoa production this season is 4.33 million tons, 2.9% below ICCO's previous forecast. Grinding estimates are expected to be 2.1% lower, at 4.75 million tons. 

Bloomberg noted, "New York futures are up around 80% this year as poor harvests in West Africa curbed supplies, though prices have pared back from record highs. The region's cocoa industry is still grappling with lasting issues like crop disease, and new trees take at least three years to reach fruit-bearing maturity. That's constraining how quickly production can ramp up to ease the shortage." 

New York bean prices are locked in a triangle formation of compressing price action, indicating that a big move might be on the horizon. 

New data from ICE exchange-monitored warehouses shows US cocoa stockpiles have slumped to the lowest levels since early 2009. 

Meanwhile, candy companies such as Hershey have been pushing higher cocoa costs to customers. The PA-based company has already slashed its sales and earnings outlook for the year as shoppers have decreased purchases of higher-priced chocolates and candies. In other words, demand destruction has emerged. 

Let's not forget that oil trader Pierre Andurand remains bullish on the view that the stocks-to-grinding ratio for the world at the end of the year will be at its lowest ever "and potentially run out of inventories late in the year."