Industry Trend Analysis - 2017/18 Fall in Cocoa Output Highlights Long-Term Challenges - AUG 2017

BMI View: 2016/2017 cocoa output in Cote d'Ivoire is still on track to surpass the record harvest recorded in 2015, despite heavy rain in recent weeks. Production has peaked and we forecast production to decline in 2017/18 , but Ivorian producers will continue to contribute to global oversupply this year and next, so the recovery in prices out to 2021 will be slow. The outlook for West African cocoa production on a 3-4 year horizon is negative, as investment is low and farmers are switching away from the crop.

Cote d'Ivoire is still on track to set a new record in cocoa production in the 2016/2017 season, as we approach the end of the mid-crop harvest (May - September). We are maintaining our forecast of 1.9mn tonnes (up 20% from 2016), which would take the country above its previous record of 1.8mn tonnes set in 2015. Heavy rains have cut off access to producing areas, delaying the harvest and raising fears of a possible proliferation of black-pod disease, but there is as yet no evidence that the smaller of the country's two annual crops has been materially affected. Cote d'Ivoire has in any case already sold 1.8mn tonnes through June 30, according to government data, and will continue to add to the global glut that has been bringing down international prices over the past year.

The longer term outlook for Ivorian cocoa production is less positive; we are forecasting a multi-year shift away from the crop in West Africa, beginning with a drop to 1.7mn tonnes in the 2017/2018 season, which starts in October. Improved yields resulting from the relatively recent introduction of a new variety will not compensate for long-term structural problems facing the cocoa production complex, and this will drive gradual price increases up to 2021

Supply Glut Will Slow Price Recovery
Cocoa - Production ('000 tonnes) & Front-Month LIFFE Prices (USD/tonne)
f = BMI forecast. Source: BMI, USDA, International Cocoa Organisation

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