Olam Sees Cocoa Deficit Likely Next Season as Demand Grows

(Bloomberg) -- Rising consumption will probably flip the global cocoa market into a shortage next season, according to Olam International Ltd., the world’s third-biggest processor.

Demand is rising and some producing countries including Indonesia are struggling to boost output, Gerry Manley, head of cocoa at the Singapore-based company, said in an interview at the World Cocoa Conference in Berlin. The market is seen close to balanced in the season that ends in September.

Cocoa futures tumbled in the past two years as top grower Ivory Coast produced a record crop and global supplies overwhelmed consumption. The lower prices have ignited demand, with processing rising more than 5 percent last season and possibly growing as much as 4 percent in 2017-18, Manley said.

"It’s more likely to be a deficit year at this moment in time given where consumption is," he said. "You do need the supply to come into the market and there are definitely one or two areas which are struggling."

Futures have rebounded more than 30 percent this year after falling to a multi-year low of 1,322 pounds ($1,847) a metric ton in January. Prices are now at a level that’s more manageable for most players in the market, Manley said

"Below 1,850 pounds, I think you see that cocoa becomes difficult for many producing countries, for many farmers,” he said. "The good thing with the low prices is that it’s stimulating consumption and stimulating in a very strong way."

Olam Sees Cocoa Deficit Likely Next Season as Demand Grows

Demand has been strong for cocoa butter, used to make chocolate, but also for other products such as liquor and powder, according to Olam, which expects the trend to continue over the coming months.

"We believe consumption is still strong and we see consumption occurring in other areas of the business, it’s not just chocolate," Manley said. "Consumption is shifting into dairy, into ice creams, into bakery goods."

Ivory Coast will produce about 2 million tons of cocoa this season, slightly below the 2.1 million tons of a year earlier, Olam forecasts. Neighboring Ghana, the second-largest grower, will harvest about 800,000 tons and output is unlikely to grow next season.

"The issues there are probably more on fertilizers and pesticides management rather than the crop itself, and that is why we are not really seeing Ghana grow too much," Manley said. "We are not expecting a major upsurge in production next year either."

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