Cocoa beans
New York cocoa bean futures could tumble below recent eight-year low.

DANA POINT, CALIF. — The forecast 2016-17 global cocoa bean surplus and other factors that sent New York cocoa bean futures to eight-year lows below $2,000 a tonne in recent weeks could be exacerbated by a second year of surplus and could prompt prices to tumble as much as another 25%, Steve Wateridge, managing partner at Tropical Research Services, said at the International Sweetener Colloquium held in Dana Point on Feb. 28.

Mr. Wateridge suggested New York cocoa bean futures could drop as low as $1,500 a tonne in the next few months, down more than 50% from highs above $3,000 a tonne posted early in 2016, if it becomes clear there will be a sizable global cocoa bean surplus for a second consecutive year.

He forecast surpluses of 352,000 tonnes in 2016-17, the current marketing year, and 345,000 tonnes in 2017-18, which begins Oct. 1, 2017. The 2017-18 stocks-to-use ratio may be the highest in over 20 years, and futures could be heading to $1,500 a tonne, he said. Futures prices already have factored in this year’s global surplus (with prices down more than 30% from a year ago), but haven’t moved low enough to “take out” next year’s surplus, he said.

The size of next year’s crop in top-producing West Africa could be known as early as the second quarter of 2017, Mr. Wateridge said. In addition, he noted that increasing production in Peru and Ecuador could add to the global supply.

Mr. Wateridge noted that “scare” headlines in the past couple of years that the world would run out of cocoa, or of a one million-tonne deficit, is “never going to happen.” He said those forecasts were based on expectations that cocoa demand would continue to grow at about 3% or more annually over the next five or six years, while cocoa bean production would grow more slowly or level off. But he noted that while cocoa bean production was actually “worse” than expected in 2016, cocoa demand also declined to nearly match production. He said cocoa bean futures sustained over $3,000 a tonne, fueled largely by increased speculative buying in the futures market, “was very good for producers but very bad for consumption and killed demand.”

There also are “serious structural issues with the demand side” of cocoa, Mr. Wateridge said. He noted that health issues played a role because chocolate contains sugar and fat, which makes it difficult for manufacturers to increase bar size to boost consumption as in the past and may curb consumption in developing countries. In fact, several chocolate manufacturers have decreased bar sizes in recent years due to high ingredient costs or efforts to reduce calorie counts.

On another issue, Mr. Wateridge said “it staggers me how much money has been spent on sustainability projects” in the cocoa industry. Despite high cocoa bean prices in recent years, he said the projects don’t “really seem to be benefiting the farmer.”