Cocoa prices on Tuesday surged to a 23-year high as speculative investors poured into the market amid concerns about dwindling supplies from Ivory Coast, by far the world's largest producer.
Prices for cocoa have risen 70 per cent in the past year, bucking the weakness in overall commodities prices.
The drop in sterling has helped push London-based, sterling-denominated cocoa futures higher, but analysts said the main factor was low supplies.
The International Cocoa Organisation said in its latest monthly report that cocoa bean arrivals until the end of November at ports in Ivory Coast, which provides almost 40 per cent of the world's supplies, were the lowest in years.
"Only 251,000 tonnes of beans are estimated to have reached the local ports during the first two months of the current season, a level around 40 per cent below average for the four preceding seasons," it said.
The problem has continued in December – the traditional peak of the harvesting season – because of the impact of cold weather and heavy rains earlier this year, the so-called black pod disease, reduced use of fertiliser because of high prices and a spate of strikes among farmers and customs personnel, traders said. They added that cocoa supplies from Ivory Coast's west African neighbour Ghana, the second largest producer, were also lower than last season.
As a result, Fortis bank warned that the market faces its third seasonal deficit in a row, further depleting global stocks, which are already at a 20-year low. Inventories are at 39 per cent of global consumption, down from 54 per cent in 2005-06.
In London, Euronext.Liffe cocoa for delivery in May, the market benchmark, on Tuesday jumped to £1,820 a tonne, the highest since October 1985, and 4 per cent higher on the day. New York cocoa futures, denominated in dollars, have risen almost 30 per cent in the past year.
Fortis, nevertheless, said the market was overbought, warning that traders were "fully discounting that, on the production side, everything that can go wrong .?.?.?will indeed go wrong", without paying attention to lower demand because of the impact of the economic crisis.
Although cocoa consumption has been in the past resilient to economic downturns, traders forecast a drop next year, particularly in the US and Europe.