Cocoa prices are at risk of "precipitous collapse" if prospects for supplies improve further, ABN Amro warned as it raised its outlook for world production of the bean and a slowdown in consumption growth.
The bank lifted by nearly one-half to 227,000 tonnes its forecast for the cocoa output surplus in 2010-11, highlighting an "extremely good season" for farmers in countries such as Ghana and Ivory Coast, the world’s biggest producers.
"In West Africa, the main crop has been excellent," said the bank, whose research is undertaken with VM Group.
However, prospects for consumption looked weak, given the "gloomy clouds" hanging over European and US economies, where austerity measures have "yet to feed through into daily lift.
It was "doubtful" that a rise in cocoa grindings evident in recent months "is sustainable – after all, chocolate is one item in the weekly shopping basket that does not have to be bought".
‘Collapse could be precipitous’
While the bank stuck by a forecast of cocoa production returning to deficit in 2011-12, by some 93,000 tonnes, it warned that this depended on an "optimistic" view of consumption.
If industrialised nations, by far the biggest chocolate consumers, struggled, and the production outlook improved, the market faced conditions far less supportive to prices, which remain at historically high levels.
"The price collapse could be precipitous," ABN said.
Indeed, it was already a "wonder" that the price "remains so persistency high", given the political resolution in Ivory Coast which has allowed the shipment of about half the 470,000 tonnes of cocoa stockpiled during export curbs imposed by Alassane Ouattara during his battle to assume presidency.
The report came as Ivory Coast’s Coffee and Cocoa Bourse (BCC) reported that bean arrivals at the country’s ports had reached 1.33m tonnes since the beginning of the 2010-11 marketing year in October, up 24% from the same period the previous season.
And it came as prices indeed dipped, falling 1.3% to £1,945 a tonne in London for September delivery, and by 1.2% to $3,135 a tonne in New York, for the same month.