Price differentials in the European cash cocoa market eased this week due to weak demand as dealers were reluctant to step in, waiting to hear news about the mid crop quality in Ivory Coast, the world's top producer. Ivory Coast differentials were about 70 pounds ($110) over London nearby cocoa futures contracts, compared to 75 pounds last week. Ghana differentials were 100 pounds over London nearby cocoa futures, compared with 110 pounds last week.
Strong harmattan winds and dry weather in most of Ivory Coast's cocoa growing regions, which have hurt development of the main crop, could also harm its mid crop, farmers said. "The weather is key. We still don't know what the impact on the mid crop will be," one trader said.
"We expect to have more information about it in two to three weeks." Less favourable weather in West Africa and a return to the long-term decline in Ivory Coast production are expected to switch the global cocoa market into deficit in 2011/12, a Reuters poll showed on Monday. World 2011/12 cocoa demand is expected to outstrip production by 50,000 tonnes, according to the poll's median forecast.
But despite the expected deficit, cocoa futures eased in early trading on Friday as lower-than-expected North American grindings growth fuelled demand concerns. "Expectations of robust demand for cocoa in Europe were disappointed in particular," Germany's Commerzbank said in a statement earlier this week.
"Although the European Cocoa Association announced a 6.8 percent increase in grinding volumes for 2011 as a whole - a level not seen since the year 2000 - the year-on-year rise reported for the fourth quarter of 2011 turned out to be a mere 1.8 percent." Price ratios for cocoa butter, a key ingredient in chocolate, were unchanged compared to last week on weak demand. "Dealers are reluctant to buy because they expect ratios to come down," a third trader said.