Global appetite for chocolate reduces excess cocoa projection

The "huge" demand in emerging markets should continue this season, and the third largest cocoa processor in the world casts a strong reduction of the global surplus. The supply surplus of cocoa, which reached a record last season, probably will fall to about 50,000 metric tons, said Gerry Manley, Director of cocoa of Olam International.
The demand increased particularly in Asia, where countries like the Philippines, Indonesia, India and China are consuming more cocoa powder, used in products such as cookies and ice cream, said Manley. And, although farmers in West Africa may have exceptional vintages for the second consecutive year, it is unlikely that the world's largest producer, the Ivory Coast, repeat last season's record crop.
"We are very optimistic about the demand," said Manley, in an interview at the company's Office, in London, on Thursday. "We are observing a good demand for cocoa powder all over the world, but emerging markets are ahead".
Cocoa reference futures in London fell 23 percent last year, the largest decline since 2011, because the production hit a record in the Ivory Coast and Ghana, the second largest producer, also reaped a big harvest. Abundant yields in Africa helped raise the overall surplus to 371,000 tons, according to estimates of the International Cocoa Organization, with headquarters in Abidjan.
This season, the global cocoa processing probably will increase more than 3%, said Manley, who added that this projection is conservative. Processing grew by over 5% in 2016-2017. Approximately of 8,000 new products were launched in the confectionery market last year, said Manley.
The lower costs are stimulating demand and the global chocolate candy market expanded 2.3 percent in the three months ended in June and 2.2 percent next quarter, said the largest cocoa processor in the world, Barry Callebaut, this month, citing data from the anah company Lise Nielsen. The recovery came after at least six consecutive quarters of contraction.
Speculation
The second consecutive year of surplus probably will keep the cocoa prices linked to a track, but macroeconomic events could force speculators to cover their short positions. Speculators come betting that cocoa prices will fall in London for over a year, shows data from the stock exchange ICE Futures Europe.
"Since the beginning of 2017, we observe a much stronger correlation between the short positions in crude cocoa and in general agricultural complex, particularly in agricultural commodities," said Charles Leslie, trader of Olam in London, in the same interview. "There's a much bigger macroeconomic influence on cocoa, and she is probably the biggest risk for high".