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Due to the extreme weather affecting the output of cocoa and coffee beans, the futures prices of soft commodities have risen recently in the past two days. Citibank expects that there is still room for cocoa and coffee bean prices to rise in the future.
Adverse weather conditions have affected the production of cocoa, the raw material for chocolate, and coffee beans, the raw material for coffee, two major soft commodities. Due to supply constraints, cocoa and coffee bean futures prices have been rising recently.
ICE cocoa futures prices broke through the $10,000 per ton mark for the first time on March 26 local time, and closed at $10,120 per ton on April 1, and the price retreated on Thursday local time to close at $9,462, but remained high, with cocoa futures up more than 240% over the past year.
West Africa accounts for 70% of global cocoa production, with Côte d'Ivoire and Ghana being the two largest cocoa producers, but both have recently been affected by extreme weather and disease. The International Cocoa Organization reports that heavy rains and the spread of black pod disease have affected cocoa cultivation, while poor local road conditions have also affected the distance to transport cocoa to the port.
Darren Staizer, Vice President, Asia Soft & Agricultural Commodities, Stonex Group: There's panic in the market right now, there aren't enough cocoa beans to meet existing long-term contracts, and the risk in the market right now is that high futures prices could continue for a few more years.
In terms of coffee beans, Robusta coffee beans are a commonly used coffee bean variety in instant coffee, and Vietnam is the world's largest producer of Robusta coffee beans.
Robusta beans for May delivery rose 4% local time on Wednesday to settle at $3,812 a tonne, the highest price since the futures contract began trading in 2008. On Thursday, it retreated slightly to $3,766.
The president of the Vietnam Coffee Association said that now farmers and purchasing agents have low stocks, indicating tight supply. Some coffee importers are concerned that the shortage of irrigation water due to unfavourable weather conditions in Vietnam may also affect the production of coffee beans in the next season.
The tight supply of Robusta beans has also boosted demand for comparatively better Arabica beans.
On Wednesday local time, the price of Arabica coffee bean futures for May delivery broke through the $2 mark per pound, hitting a new high this year. The price continued to rise on Thursday local time, closing at about $2.07.
Brazil is the largest producer of Arabica beans, and local grower brokers say there has been a strong demand for a relatively low-quality portion of Arabica beans in recent times, as roasters can use them to replace Robusta beans to make blends.
Citibank expects cocoa and coffee bean prices to still have room to rise. Cocoa is expected to stabilize between $9,000 and $10,000 a tonne over the next three to four weeks, while futures for Arabica beans this year are expected to be around $1.88 to $2.15, with further increases in forecasts if production tightens.
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Editor: Dong Lindan