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)|