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Fundamental supply/demand + speculation = historic high prices!
The expression ‘onward & upward' unfortunately continues to apply to the Cocoa Market, with a steady increase throughout June to new highs not seen for more than 22 years and up 57% since the start of the year. These higher prices are attracting considerable interest from speculators. Tempted by potential gains to be had through the price volatility of the commodity market, institutional investors from outside of the food industry have recently invested heavily in agricommodity markets. Manufacturer forward cover for cocoa is currently about five months, which remains low by historic standards and demand for cocoa is growing steadily, with brightest prospects seen in the emerging Asian markets and eastern Europe. .

And as the cocoa deficit looks to continue into 2009, and the global stocks-to-grindings demand ratio stands at around 41%, which is also a 22 year low, so there is little doubt that pressure on the futures market for prices will remain, in turn meaning speculators will certainly maintain their interest, thereby contributing to continuing upward price pressure. We think that there is little reason to doubt that we will soon see the highs of October 1985 of £1856 being breached and then the £2000 milestone is not far away.

The beginning of the end?
Sterling has stabilised against the Euro and seems to be staying within a narrow range, but again since last Autumn the damage has been done. A question of watch this space, but we see the £pound maybe regaining some ground against the Euro by the end of the year, albeit on by 3-5%. Maybe wishful thinking, but let's see!

General
Oil price, biofuel debate, interest rates, credit squeeze, potential industrial unrest, plague, pestilence and other doomsday predictions are rife throughout the media. Our revered leaders tell us that UK inflation is 3.3%, but in the real world we all know differently.
Food Inflation is a widely covered press item and all of us know first hand how food prices have increased in recent months, with fuel & energy costs impacting on all consumers. This situation is here to stay, as we have said many times in the past, food has been too cheap for too long and so we are seeing a ‘correction' for fundamental reasons, which will eventually stabilise, but never return to previous levels.
Cocoa is not alone, turmoil in Grain, Milk, Sugar & other agricultural commodity markets will continue for the foreseeable future, but at least supplies in the Developed World should be still available. Elsewhere this is becoming a different story.

Tony Mycock – 26.6.08



 
 
 
HB Ingredients
Cocoa House, 22 Bell Lane,Bellbrook Industrial Estate, Uckfield East Sussex. TN22 1QL.
Tel:+44(0)845 88 00 799 Fax:+44(0)845 88 00 833
e-mail: sales@hbingredients.co.uk Website: www.hbingredients.co.uk