Cocoa price rally to continue this year : ABN Amro

LONDON (Commodity Online) : Global cocoa prices likely to witness major price hike this year despite high output projections, according to ABN Amro.
In its latest report, ABN Amro raised global forecasts of the bean to 3.75m tones in 2010-11, a rise of 6.6% year on year, and an increase far faster than that likely in consumption.
The comments came as cocoa futures reached a five-month high in London, and their best for nearly a year in New York.
The bank lifted Indeed, ABN termed as "at the lower end of expectations" and potentially "disappointing" data overnight showing a 4.6% rise in North American cocoa grindings by processors such as Archer Daniels Midland and Kraft in the last three months of 2010.
Cocoa supplies looked set to rebound further than had been expected from last year's production deficit, the bank said, upgrading its estimate for the 2010-11 surplus by 15,000 tonnes to 43,000 tonnes.
However, the bank acknowledged that its forecast assumed benign outcomes to a number of potential hiccups - notably the political stand-off in Ivory Coast, the top producer of the bean, where incumbent president Laurent Gbagbo is refusing to stand down despite, ostensibly, losing elections last year.
This impasse was "sadly, unlikely to have a peaceful resolution", ABN warned, adding that the situation had left cocoa "in limbo".
Furthermore, the La Nina weather pattern - which tends to boost production of cocoa, unlike other crops – was forecast to fade.
And stronger economic growth could see consumption of the bean, which turned negative in Europe at the end of 2010, beat forecasts.
"By the middle of 2011, the La Nina will be past, the situation in Ivory Coast is unlikely to have been settled peacefully, and the global economy may well be showing even stronger signs of a return to good levels of growth," ABN said in a report written with VM Group.
"The price risk… therefore remains to the upside."
Higher prices were also favoured by long-term structural factors, including the deterrent caused by political instability on Ivory Coast investment, and competition for plantation land with crops such as palm oil and rubber which were seeing historically high prices, and are less weather sensitive.
"Cocoa prices remain a long way off their all-time peak of $5,335 a tonne in July 1977," the briefing said.
"If grindings recover strongly throughout 2011, and the supply response lags - as is likely - then a similar spike is not inconceivable, later this or early next year."

(Source: http://www.commodityonline.com/news/Cocoa-price-rally-to-continue-this-year--ABN-Amro-35877-3-1.html)