Ron SterkWASHINGTON — Cocoa butter prices jumped to 1½-year highs during March while cocoa bean futures traded up to 2½-year highs in London and 1½-year highs in New York amid indications of improving cocoa demand and earlier weather concerns about the West African cocoa bean crop. At the same time, prices for natural cocoa powder were at four-year lows in December and have struggled to find support ever since.

Cocoa butter prices were quoted by the Cocoa Merchants’ Association of America at $7,728 per tonne as of March 23, up 66% from the multi-year low of $4,667 per tonne on April 28, 2017, and the highest since $7,760 per tonne on Sept. 23, 2016. The price eased $170 in the last week of March but has held above $7,000 since March 9.

Cocoa bean supplies are coming off a major global surplus estimated at 300,000 tonnes in 2016-17 (year ended Sept. 30) after record production in the Ivory Coast. Production in 2016-17 soared nearly 19% from weather-reduced outturn in 2015-16 to an estimated record 4,748,000 tonnes, according to data from the International Cocoa Organization (I.C.C.O.). But 2017-18 production was forecast by the I.C.C.O. to drop 2.3% due in part to lower outturn in the Ivory Coast and Ghana, the world’s two largest producers, as the result of lower farm-gate prices, less crop inputs (fertilizer and pesticides) and adverse weather. A surplus of 105,000 tonnes was forecast for 2017-18, and global ending stocks were forecast at 1,830,000 tonnes, up 6%. Some private forecasters expect an even sharper drop in 2017-18 production.

While there is no shortage of cocoa beans in the world, speculative trading in cocoa bean futures soared in part due to weather concerns in the Ivory Coast. Recent rainfall improved mid-crop cocoa bean prospects in the Ivory Coast, which contributed to futures coming off those highs in the past couple of weeks.

Cocoa bean futures were on a tear in London and New York in recent weeks. London futures traded at 2½-year highs for some time, while New York futures hit a 1½-year high above $2,600 per tonne in late March, up 45% from a low near $1,800 per tonne in December 2017 and up nearly 50% from lows in June and July of last year but still about 20% below highs above $3,200 per tonne in June 2016. Futures in both London and New York eased modestly in early April.

Cocoa butter prices chartCocoa powder prices, meanwhile, have edged up only slightly since falling to four-year lows in December. Trade sources indicate powder buyers are mostly well covered for 2018 and are eyeing 2019. It should be noted that when cocoa butter prices go up, cocoa powder prices tend to go down. About the same amount of butter and powder (or cake) are produced when beans are processed, and butter is the more valuable product, so beans are ground for the butter and strong butter demand may result in excess powder.

Demand remains the key factor, and that part of the equation is the most difficult to determine or predict. Global cocoa bean grindings, an indication of demand, were forecast by the I.C.C.O. at 4,487,000 tonnes in 2017-18, up 2% from last year. But the most recent cocoa bean grinding data was mixed, with European grind in the fourth quarter of 2017 up 4.4% from the same quarter a year earlier and full-year grind up 2.6% from 2016. But North American fourth-quarter grind was down 1.3% year-over-year and for all of 2017 slipped 0.1% from 2016.

Some private analysts are cautious about forecasting robust cocoa demand. They note that lower cocoa bean, butter and powder prices in 2017 did not equate to lower retail prices, which may have encouraged consumers to switch away from chocolate to other confectionery. At the same time, many chocolate manufacturers in recent years reduced the size of chocolate bars, either to limit calories or to offset earlier high cocoa prices, which may also have contributed to a longer-term erosion of chocolate demand. Also a factor has been the slow growth of chocolate demand in major emerging economies, especially China, where demand was expected to explode as the standard of living increased.