London, Jan. 18 - Strong global demand, tight supplies and increased buying by investment funds will drive up cocoa prices again in 2008, a Reuters poll of analysts showed.
According to a median of analysts polled by Reuters, ICE second-month cocoa futures will surge 14.1 percent year-on-year to $2,325 per tonne by the end of 2008.
London second-month cocoa was expected to jump 14.5 percent, to 1,215 pounds per tonne by end-2008.
Early on Friday, IntercontinentalExchange May cocoa futures prices were down $35 at $2,153 per tonne. LIFFE May cocoa futures were down 7 pounds at 1,133 pounds per tonne.
"There will be strong demand for cocoa and chocolate," said Judy Ganes of J. Ganes Consulting in the United States.
"There will be a continued struggle to have good quality crops with production highly concentrated between a few suppliers," she added, referring to leading producers such as Ivory Coast, Ghana and Indonesia.
A U.S.-based trader, who asked not to be identified, said, "The weight of money from investment funds will dictate prices rather than fundamentals (supply/demand)."
"The Indonesian main crop will be critical to the equation. Last year saw the crop potential unexpectedly collapse in March/April. A repeat this year would drive prices strongly higher though at the moment the prognosis looks OK."
Analysts say investment funds have poured money into soft commodities at the start of 2008 in a bid to take advantage of the commodities boom.
"CLOSE BALANCE"
The median cocoa supply/demand balance was a 30,000 tonne deficit in 2007/08. This compares with a world cocoa deficit of 250,000 tonnes in 2006/07 predicted by the previous Reuters poll of analysts conducted in July 2007.
The head of the International Cocoa Organization (ICCO) said on Thursday he expected a "close balance" between global supply and demand of cocoa in 2007/08 after a 242,000 tonnes deficit in 2006/07.
Jan Vingerhoets told Reuters in an interview he expected London benchmark cocoa futures to stay above 1,000 pounds per tonne, and possibly above 1,100 pounds per tonne, in 2008, due to strong demand.
Most analysts predicted stocks would fall due to strong demand and the high cost of holding inventory.
The median forecast by analysts for the total crop of top cocoa producer Ivory Coast in 2007/08 was 1.40 million tonnes. In the previous Reuters poll in July 2007, the median for forecasts of Ivorian production were at 1.25 million tonnes for the 2006/07 season.
Analysts will continue to be preoccupied by political instability in Ivory Coast, although they have noted that cocoa has reached the ports in the past in spite of domestic turmoil.
Asked what factors are expected to drive the cocoa market in 2008, one analyst said:
"Ivory Coast politics and weather. Demand looks to remain strong, so weather and politics will be key."
The higher prices farmers will be getting for cocoa this year will help them to improve husbandry for the coming mid crops in West Africa and into next year's main crops again, traders said.
Al Abaroa of Time Leverage Capital in the United States said: "Recent favourable weather should boost the (West African) mid crop harvest. Drought conditions are not in play compared to last year."