5 reasons that can cause draun for the COCCOA

Last year’s best-performing commodity is poised to become the market’s worst nightmare.

Here are five reasons for the bearish outlook:

1. Farmer Profit

The government in Ivory Coast, which accounts for almost 40 percent of global production, raised prices paid to farmers for a third consecutive year. Growers will get $1.62 per kilogram during the bigger of two annual harvests in the 2015-16 season, an 18 percent increase from a year earlier.

2. Weaker Demand

With the cost rising for chocolate makers, many have tapped into inventories, cutting demand for new supplies.

3. Rains Return

Dry conditions from El Nino probably will be replaced by a more favorable La Nina pattern that will bring more moisture to cocoa crops, according to MDA Weather Services. Three of five strong El Ninos since the 1950s were followed by La Nina.

4. Latin America

While farmers in Ivory Coast and Ghana continue to dominate supply, output is growing in Latin America. Countries in the region have been planting high-yielding trees, according to the London-based International Cocoa Organization. Production in Ecuador rose 6.8 percent in 2014-15, and expansion is occurring in Colombia and Peru.

5. Surplus Ahead

After a production deficit of about 150,000 tons in the 2015-16 season that started in October, the world will soon have more supply than it needs. Output will exceed demand by 93,000 tons in the 2016-17 season. That would be the biggest glut since 2010-11.