Fitch Solutions issued a cautious short-term forecast for cocoa prices, but was more upbeat on values ahead, seeing the market – already at its tightest in “at least a decade” – finding support from a run of further global production shortfalls.

Although the analysis group raised to $2,440 per tonne its forecast for average New York cocoa futures prices in 2022, on a nearest-but-one contract basis, it said that this outlook implied values averaging about $2,250 per tonne over the last three months of the year.

That is a little below the $2,290 per tonne at which the March 2023 contract closed on Thursday, with Fitch saying that its revision reflected its “view that bearish factors will see prices dip” during the current quarter.

The group cited as weighing on values factors including appreciation in the US dollar, which cuts the affordability of dollar-denominated assets, as well as waning economic prospects.

Buoyant outlook

However, for 2023, while Fitch cut its forecast for year-average cocoa prices to $2,380 per tonne, the outlook remained some $50 above the level that futures are factoring in.

It was also above the analysts’ consensus, as reported by Bloomberg, that prices will average $2,300 per tonne next year.

Further ahead, the analysis group forecast prices continuing to rise out to 2026, for which it forecast an average New York value of $2,500 per tonne.

The figure reflected expectations that a production deficit of 203,000 tonnes estimated for 2021-22 would kick start a run of output shortfalls lasting for at least for the following four years.

Already, the deficit for 2021-22, which closed last month, means that “the global cocoa market is now tighter than it has been it at least a decade”, with a stocks-to-use ratio of 33%, below a trailing 10-year average of 38%.

‘Upward price pressure’

“In the longer term, our view is that global cocoa demand growth is set to outpace growth of production, which will result in a widening global cocoa deficit between 2022-23 and 2025-26,” Fitch said.

“Our view that the global cocoa market will again start to tighten after 2022-23 as developed market demand faces fewer headwinds and as emerging and origin market cocoa grindings increase, resulting in a widening annual global production deficit.”

Although foreseeing production expanding by an average of 2.4% a year out to 2025-26, Fitch saw demand growth reaching 2.7% a year, fuelled by investment in grinding capacity in origin countries such as Ivory Coast, which is poised to overtake the Europe Union as the top cocoa processor.

“Processing activity and capacity continues to shift to emerging markets,” with expansion expected in the likes of Brazil and Indonesia too.

The run of production deficits – which from 2021-22 to 2025-26 will total 720,00 tonnes – will generate “upward price pressure”.

‘Strong recovery’

Fitch, however, highlighted the potential for some temporary loosening in market tightness next year, given the prospect of much-improved production in Ghana, the second-ranked cocoa grower, after Ivory Coast.

“We forecast that output will make a strong recovery in 2022-23, rising by 17.9% y-o-y to 825,000 tonnes” from levels depressed last season by a strong Harmattan wind season, which sees hot and dry air blown in from the Sahara.

The comments came as Ghana unveiled a 21% hike, to 12,800 cedis per tonne, in the guaranteed producer price for the country’s cocoa, equivalent to 90% of the FOB export price.