Analyst: Sugar should level off and don't expect dramatic drop in cocoa prices

By Jane Byrne

- Last updated on GMT

Related tags: Cocoa prices, Forecasting, Côte d'ivoire, Cocoa bean

Analyst: Sugar should level off and don't expect dramatic drop in cocoa prices
There will be no dramatic drop in cocoa prices in the coming months as forecast by numerous speculators hoping to cash in on a downward trend, reports a cocoa market specialist.

Francisco Redruello, senior foods analyst at Euromonitor International, also expects sugar to be less volatile towards the back end of 2011.

July saw a moderate drop in cocoa prices with the LIFFE cocoa futures declining by about 7 per cent.

Strong market fundamentals are the driver for this trend, remarks Redruello. He claims the drop in prices is based on strong output projections from the Ivory Coast which accounts for 40 per cent of global production.

In its monthly review of where the commodities market is at, the analyst also cites official data showing a hike of 22 per cent in cocoa bean arrivals to the Ivorian ports.

Furthermore, continued Redruello, prices lowered based on some forecasters already predicting a record cocoa harvest in the Ivory Coast for the 2011/12 cocoa production season.

Indeed, traders betting on lower prices have been predicting a dramatic drop in prices for the second half of 2011. But Redruello is not ‘entirely convinced’ of such a development coming to pass.

“It is true that cocoa butter prices have been flat in the last three months but cocoa powder, extensively used in the whole drink and ice cream industries, has maintained very high price ratios, driven by strong demand in Asian economies.

While some further decline in cocoa prices is likely to take place in the coming weeks, I do not foresee any dramatic acceleration in trend before September,” ​he added.

Sugar may stabilize

In terms of sugar, last year’s drought and low yields from sugar cane plantations in Brazil has continued to attract bulls into sugar trading and this has pushed up prices even further, said Redruello.

In addition to this, he notes, the International Sugar Association has predicted that China is set to import 3m MT of sugar to meet demand.

“There is a glimmer of hope though. Independent forecasters are predicting an increase in sugar production of around 2m tonnes in India for the coming seasons. If this is confirmed, prices may start to stabilize in the last quarter of the year,”​ predicts the analyst.

Related topics: Commodities, Ingredients

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