Your craving for chocolates set to be a costly affair

Rising cocoa demand, leading to shortfall in supplies, is likely to rein in your cravings for chocolate this year as its prices are expected to surge to a three-year high. Last week, prices were up nearly three per cent, touching a two-and-a-half year high.

The commodity, the main ingredient for making chocolates, has increased some seven per cent in a month and over 30 per cent in the last 12 months. Last year, cocoa was one of the best performing commodities, as prices rose about 20 per cent to £1,727 a tonne.

On Monday, cocoa futures maturing for delivery in March was quoted at $2,890 a tonne on ICE US. On LIFFE, May cocoa contracts ruled at £1,861 a tonne.

According to traders, supply deficit is forecast again this year as growth consumption in projected to outpace growth in production.

Open interest in cocoa futures on ICE US has increased to 2.62 lakh lots, the highest in three months. According to Commodity Futures Trading Commission of the US, hedge funds and money managers increased their bullish bets on cocoa last week.

The supply deficit projections have brought in more speculators in the market. The record open interest was basically due to speculators building long positions in cocoa market, buoyed by lower inventories and higher forward sales. A Reuters poll of 17 traders and analysts showed that world cocoa production in 2013/14 (October-September) is likely to be one lakh tonnes short of demand. This is on the heels of a 1.5-lakh tonne shortfall during 2012-13.  

Rising chocolate consumption is expected to result in cocoa demand growing 3 per cent this year, against the normal average growth of 2-2.5 per cent. Though the crops in West Africa, the main global suppliers, are reported to be good, the deficit is seen arising mainly due to higher offtake. Global cocoa grindings, an indicator of demand, during October-December were estimated 5 per cent higher compared with the same period a year ago.

Prices on LIFFE are seen by analysts topping £1,900 by the year-end, though they are seen trading sideways in the short-term. By the end of the March quarter, prices are forecast to touch £1,750 .

Production in Ivory Coast, world’s top producer, could rise to over 15.20 lakh tonnes (lt). Output in Ghana, the second largest producer, is pegged at 8.55 lt. For 2012-13, the International Cocoa Organisation estimates Ivory Coast output at 14.50 lt. Production in Ghana has been pegged at 8.35 lt. Reports from Ivory Coast said that though arrivals at ports were higher at 10.47 lt till now this season against 8.7 lt during the same period a year ago, cumulative arrivals were 23,000 tonnes lower at 8.81 lt.

According to ICO, demand for chocolate is gathering pace in developed and developing markets, particularly Asia.

This has led to a prospect of another supply deficit this year, despite higher production.