Per the FT’s latest piece on the cocoa industry, the International Cocoa Organization expects a surplus of 80,000 tons in the coming year as global production will rise by some 6 percent, while renowned cocoa analyst Hans Kilian sees an even greater imbalance.  All told, analysts expect that the Ivory Coast’s production (responsible for 40 percent of global supply) will surge in 2010-11 to about 1.4m tons, up 15 percent from 1.19m tons in 2009-10, following a shorter “mini-dry” season (July and August saw periods of downpour followed by sunshine–“a perfect environment for the delicate cocoa trees . . . [and] largely favourable to avoid diseases such as the black pod, which ruins the beans’ quality.”  Furthermore, this year has seemingly provided at least some supply response to last year’s price spike: “even if still negligible by the standards of other regions, farmers in west Africa – especially in Ghana – have used this time to buy more fertilisers and pesticides,” the article notes.   And per Gerry Manley, head of cocoa at Olam International in London, “high prices have also encouraged farmers to take better care of their cocoa plantations and to harvest more frequently, particularly in the Ivory Coast.”  Needless to say, cocoa for December delivery (see chart, inset) continues to suffer.

That said, structural issues–down to the age and quality of the trees themselves and all the way up to political instability and corruption hindering the incentives and know-how of farmers–seem destined to return at some point.  Moreover, traders must also be mindful to the possibility of further instability in regional weather patterns caused by the annual harmattan, a dry wind that, according to the Ivory Coast’s head of meteorology Guehi Goroza, usually sweeps down from the Sahara between December and March and can cause a sharp drop in temperature and humidity while blowing cocoa pods from trees or damage them with dust. To that end, Goroza warns , “it’s clear that the harmattan is changing its form as a consequence of climate change,” likely manifesting in erratic weather such as longer, harsher dry spells and unpredictable rainfall.  For now, however, that’s small beans to those fund managers keen on exploiting the industry’s structural dilemma sooner rather than later.