Low Upside for Cocoa Prices as Ivory Coast, Ghana Outputs Rise
There will be a limited upside for prices of cocoa in 2021/2022 as leading Africa’s producers Ivory Coast and Ghana outputs keep the market in surplus, ING Research hinted in a new report.
According to the report, record cocoa production from both the Ivory Coast and Ghana in the 2020/21 season ensured that the market finished the marketing year in surplus.
The International Cocoa Organization (ICCO) has hinted that the global market saw an estimated surplus of 230kt in 2020/21, the largest surplus since the 2016/17 season.
ING said the Ivory Coast managed to produce a record 2.23mt this season, up 5.7% year on year, whilst output from Ghana surpassed the 1mt market to total 1.04mt, translating to an increase of 30% year on year. As a result of this strong output, global cocoa output surpassed 5mt for the first time on record, totalling 5.14mt in 2020/21, up 8% year on year.
“West Africa was key to this growth, which saw its share in global production grow to in excess of 77%, compared to around 75% last season”, analysts stated.
Demand is estimated to have broken above pre-pandemic levels in 2020/21 with grindings growing by 3.3% year on year to total 4.86mt in the marketing year, this is after grindings fell by 1.7% in 2019/20.
The continued reopening of economies following the peak Covid-19 related lockdowns last year has been constructive for the demand picture, according to ING in the report.
Having come under pressure in the first half of the year, analysts said cocoa prices made quite a recovery over the summer months. This was a result of the market looking ahead to the 2021/22 season, with the expectation that the market would return to the deficit.
However, this strength was short-lived, with the market coming under renewed pressure once again. The carryover of stock from 2020/21 is larger than initially expected, with stock to grinding ratio in excess of 40% at the end of September, which is the highest level seen since 2011/12, according to ICCO data.
In addition, while global output in 2021/22 is expected to fall from the record levels seen last season, we still expect it to be high historically. Consequently, inventories and 2021/22 output should ensure that demand this season is easily met, without putting significant upside pressure on prices.
“We estimate global production in 2021/22 will fall by 5.4% year on year to around 4.87mt, while we estimate demand to grow in the region of 1.2% to 4.92mt”, ING economics said in the note.
After adjustments, this leaves the market in deficit by a little over 100kt. Given the stock build last season, the market should easily be able to absorb this deficit.
While prices are likely to be supported due to the market drawing inventories over 2021/22, the level of the stock suggests upside will be limited over the course of next year, the report said. #Low Upside for Cocoa Prices as Ivory Coast, Ghana Outputs Rise
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