Cocoa oversupply not too sweet for prices

Markets Update: It looks like a case of too much of a good thing at the moment, as oversupplies of the sweet stuff melt cocoa prices.

Cocoa output from the world's four main producers - Ivory Coast, Ghana, Nigeria and Cameroon - hit records in the 2010-2011 season. Leo Ramirez / AP Photo

It looks like a case of too much of a good thing at the moment, as oversupplies of the sweet stuff melt cocoa prices.

Cocoa output from the world's four main producers - Ivory Coast, Ghana, Nigeria and Cameroon - hit records in the 2010-2011 season of more than 3.2 million tonnes, because of ideal weather and improved husbandry techniques.

The bumper crop is now contributing to a slide in global futures prices. It does not look like it is going to change any time soon.

"This year it looks like its going to be a big crop," said Victor Casas, the director for cocoa trades at the cocoa trader Olam International.

Ivory Coast, the world's biggest cocoa producer, has said output of the chocolate ingredient will decline slightly this year.

But Ghana expects its cocoa production this season will rival last year's record 1 million tonne crop due to improved weather and farming techniques.

Guinea is developing a plan to boost production in cocoa and coffee, including regulating prices for the country's more than 13,000 growers. Now Jamaica has announced plans to renew commercial interest in its cocoa farming.

In the United States, cocoa stocks have risen, and many chocolate makers have already bought supplies ahead of the Easter peak demand period. Hedge-fund managers cut their net-short position in New York cocoa futures in the week ended last Tuesday , according to the US commodity futures trading commission data.

But speculative short positions, or bets prices will fall, still outnumbered long positions by 3,830 contracts on ICE Futures US, the commission said. Prices have risen by as much as 21 per cent over the past two months. But these are expected to drop - with some analysts saying by as much as 10 per cent to US$2,000 a tonne by July.

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