A decline in cocoa output in top grower Ivory Coast is forecast to lead to a deficit of 183,000 tonnes in the 2015/16 season, the first shortfall in three years, Ryan Davies, head of cocoa futures trading at ECOM Agrotrade Ltd, said in an interview.
"The Ivory Coast crop is definitely where we see the deficit coming from compared with last year," Davies said, in the first interview the major Swiss-based commodity merchant has given on the crop.
ECOM, which focuses primarily on cocoa, coffee and cotton, forecasts the Ivory Coast main crop (October/March) at around 1.0 million tonnes, down from 1.25 million last year, following dry weather during the summer.
There were improved rains in October, but these would only start to boost production towards the end of the main crop season, Davies told Reuters, adding: "The soil moisture was really poor and we needed that rain to bounce back to some sort of normality."
Davies said port arrivals in Ivory Coast will be around 50,000 to 55,000 tonnes per week this month. In the same period last year arrivals ranged from around 60,000 to 80,000 tonnes.
The prospect of a global deficit in 2015/16 has helped to fuel a run-up in prices, with London futures climbing to a 4-1/2 year high of 2,332 pounds a tonne on Tuesday.
"Can prices go up from here? Certainly. Fundamentally prices of 2,300 (pounds a tonne) are justified," Davies said, adding that higher prices could however curb demand growth.
"I think chocolate demand will be around flat for the coming year," he said, noting the global cocoa grind might grow by between 1 and 2 percent.
Global grinds fell around 4 percent in 2014/15 on a combination of weaker chocolate demand and destocking of products including cocoa butter.
Ivory Coast overtook the Netherlands as the top cocoa processing country in the 2014/15 season, International Cocoa Organization figures showed. Davies said the Ivorian cocoa grind should rise about 6 percent in calendar 2015.
ECOM's global deficit projection is based on a forecast of 610,000 tonnes for the mid-crop in Ivory Coast, only slightly below last year's record 650,000 tonnes, but dry harmattan winds could lead to a more significant decline in production.
Dry weather could also curb production in Indonesia, the world's third-largest cocoa producer. "Indonesia is a shocker in terms of weather, that's where the El Nino really hit," Davies said. "The dry weather there was very obvious, that's got better in the last few weeks, but we didn't see much rainfall for a few months there."
El Nino is a weather phenomenon which typically leads to hot, dry weather in southeast Asia and heavy rains in parts of South America.
Indonesia's production was forecast to decline to 290,000 tonnes from the prior season's 325,000 tonnes.
Production in Ghana should rise this season but only modestly with a total crop of 760,000 tonnes, up from the prior season's 720,000 tonnes, Davies said.
Ghana, the second largest cocoa producer, had a much lower than expected crop in 2014/15. The reason for the crop failure remains unclear with a lack of pesticides and poor weather among the factors which have been cited.
"We think Ghana will be better than last year from a very low base," Davies said. "We don't see a huge bounce."