Global Cocoa Outlook: Côte d'Ivoire Focus

BMI V iew: We continue to expect cocoa prices to average higher over the medium term, driven in part by mediocre production prospects in Côte d'Ivoire, the world's largest producer. Although our view in October for prices to reach a temporary top has largely played out, we remain bullish on prices over the medium term as we expect continued deficits over the coming years. Among the key problems facing Ivorian production growth include a tenuous security situation, low fertiliser usage and labour shortages.

We continue to believe cocoa prices have reached a temporary top, and are unlikely to break significantly above GBP1,800/tonne in the short term. However, we continue to expect prices to average higher over the medium term due to poor supply prospects from the world's largest cocoa exporters. This is supported by our view for Ivorian production to decline in the 2013/14 season by 4.4% to 1.42mn tonnes. In our previous Côte d'Ivoire cocoa focus article ( see 'Global Cocoa Outlook, Côte d'Ivoire Focus', October 2 2013) we stated that we do not expect a decisive break above key resistance above GBP1,750/tonne. This view has largely played out as prices have oscillated around that level from early October and mid-December. Over the coming weeks, the recent rise in cocoa prices is likely to be constrained as supply from West Africa comes online. Technical indicators also suggest a further move higher is unlikely over the short term, as evidenced by the bearish divergence in the RSI.

Production growth will stagnate owing to less favourable weather conditions, poor revenues and low fertiliser use. This is especially true of top producers such as Côte d'Ivoire and Ghana, which combined account for more than half of global cocoa exports. Indeed, there is significant divergence regarding long-term production growth of the primary versus secondary producers. Over the long term, we forecast production growth from the major producers (Côte d'Ivoire, Ghana and Indonesia) to average just 7% between 2012/13 and 2016/17.

Next Stop 1800
Front-Month LIFFE Cocoa (GBP/tonne, daily) & RSI (below)

Global Cocoa Outlook: Côte d'Ivoire Focus

BMI V iew: We continue to expect cocoa prices to average higher over the medium term, driven in part by mediocre production prospects in Côte d'Ivoire, the world's largest producer. Although our view in October for prices to reach a temporary top has largely played out, we remain bullish on prices over the medium term as we expect continued deficits over the coming years. Among the key problems facing Ivorian production growth include a tenuous security situation, low fertiliser usage and labour shortages.

We continue to believe cocoa prices have reached a temporary top, and are unlikely to break significantly above GBP1,800/tonne in the short term. However, we continue to expect prices to average higher over the medium term due to poor supply prospects from the world's largest cocoa exporters. This is supported by our view for Ivorian production to decline in the 2013/14 season by 4.4% to 1.42mn tonnes. In our previous Côte d'Ivoire cocoa focus article ( see 'Global Cocoa Outlook, Côte d'Ivoire Focus', October 2 2013) we stated that we do not expect a decisive break above key resistance above GBP1,750/tonne. This view has largely played out as prices have oscillated around that level from early October and mid-December. Over the coming weeks, the recent rise in cocoa prices is likely to be constrained as supply from West Africa comes online. Technical indicators also suggest a further move higher is unlikely over the short term, as evidenced by the bearish divergence in the RSI.

Next Stop 1800
Front-Month LIFFE Cocoa (GBP/tonne, daily) & RSI (below)

Production growth will stagnate owing to less favourable weather conditions, poor revenues and low fertiliser use. This is especially true of top producers such as Côte d'Ivoire and Ghana, which combined account for more than half of global cocoa exports. Indeed, there is significant divergence regarding long-term production growth of the primary versus secondary producers. Over the long term, we forecast production growth from the major producers (Côte d'Ivoire, Ghana and Indonesia) to average just 7% between 2012/13 and 2016/17.

Our forecasts for weak growth mainly stem from low fertiliser use, less favourable weather conditions and poor revenues for farmers, particularly in Ghana and Côte d'Ivoire. Insufficient government support and pending labour shortages (owing to government efforts to diversify the economy) will also contribute to subdued production growth. For example, recent reports suggest that many Ghanaian farmers are beginning to sell cocoa in Côte d'Ivoire due to improper cocoa bean weighing techniques, while many Ivorian farmers pay local militias to maintain security around their farms. Despite reforms in both Côte d'Ivoire and Ghana in recent years aimed at providing farmers with more financial security, we believe the lingering problems will prevent significant production growth over the long term.

Cocoa On Top
Select Commodities - Price Performance YTD (%)
Long-Term Market Tightness
Global - Cocoa Production Balance (mn tonnes) & Stocks-To-Use Ratio (%)

As a result of the weak output in West Africa, we forecast the global cocoa market to remain in deficit until 2016/17, forecasting a 2013/14 deficit of 192,000 tonnes. This coincides with strong improvements in demand, particularly from Europe, the world's largest cocoa grinder (a proxy for consumption). The main upside risk to our production view is excellent growing weather in West Africa, which was last seen during the 2010/11 crop. We also expect Côte d'Ivoire to remain the world's largest cocoa exporter over the long term, as we do not expect Ghanaian production to match Ivorian output. Overall we have revised our cocoa prices higher and now see prices averaging GBP1,850/tonne in 2014 and GBP2,000/tonne in 2015.

Côte d'Ivoire Cocoa Estimates
FY08 FY09 FY10 FY11 FY12 FY13 FY14
BMI Ivoirien Cocoa Production* 1,370 1,170 1,182 1,511 1,486 1,486 1,420
ICCO Ivoirien Production * 1,382 1,223 1,242 1,511 1,486 1,475 na
Cocoa Area Harvested ('000 Ha) 2,300 2,176 2,150 2,495 na na na
% Of Global Production 35.8 36.7 32.6 32.6 35.1 36.2 37.0
Cocoa Yield (Hg/Ha) 5,833 6,011 5,621 6,053 6,250 na na
LIFFE Stocks (10kg bags) 11,263 10,034 5,290 8,335 4,515 4,101 7,596
ICE Stocks ('000 145/lb bags) 2,832 1,950 3,027 2,801 3,767 4,484 3,327
BMI Global Cocoa Production* 3,430 3,730 3,593 3,630 4,310 4,105 4,019
*(000 tonnes). Sources: ICCO, FAOSTAT, BMI (FY13 = 10/2012 to 09/2013)
Côte d'Ivoire Cocoa Calendar
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Main Main Main Mid Mid Mid Mid Main Main Main
Note: Main = main crop, Mid = mid crop Sources: BMI, ICCO
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