Monthly Softs Update

Front-month cocoa declined 4.2% in May, but we see potential for short-term gains based on price-supportive market fundamentals. In particular, we expect that global production will contract by 8.2% in 2009, dragged by supply issues in Indonesia and the Ivory Coast. On the demand side, we have recently lowered our global consumption estimate for 2009 to 3.5mn tonnes following weak grindings data from the International Cocoa Organisation (ICCO). Accordingly, we now anticipate a global cocoa deficit of 130,000 tonnes in 2009. While this is a smaller than the 220,000 tonne deficit we expected in April, we still expect that it will prove price supportive over the coming months.

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