April 24, 2018 / 11:56 AM / 3 months ago

UPDATE 1-Cargill sees balanced cocoa market, growth in local processing

(Updates throughout, adds comment, detail)

* Smaller crops, more demand pave way for balance in 2017/18

* Cargill looking to expand origin processing, focus on Africa

* Company to work with Ivory Coast on high yield seed concerns

By Ana Ionova

BERLIN, April 24 (Reuters) - Cargill sees the cocoa market broadly balanced in the current 2017/18 season and is aiming to expand its processing capacity in producer countries, the company's commercial director for cocoa said on Tuesday.

Crops in West Africa got off to a strong start in 2017/18, but production tapered off, reducing the chance of another global surplus, Cargill's Francesca Kleemans told Reuters on the sidelines of a conference in Berlin.

"The 2017/18 season got off to a good start," she said. "However, we are not expecting that same level of surplus. So we're more looking at a balanced supply and demand outlook."

The market saw a large surplus in the 2016/17 season, which the International Cocoa Organization (ICCO) has estimated at 300,000 tonnes, pressuring global prices to their lowest in more than nine years.

Kleemans pegged the more balanced market in 2017/18 on a combination of smaller crops in West Africa and more global demand, partly due to lower prices.

"We are seeing demand accelerating, which has been helped by the price," she said. "And of course, we're expecting lower crops than the record levels of last year."

Kleemans noted the mid-crop outlook in West Africa was positive, as drier weather in February was offset by good rains last month.

Early indications also signal there may be a broadly balanced market in 2018/19 as well, although it is still too early to gauge main crop development, Kleemans said.

"We have to be prudent because that crop is just now appearing as flowers in the trees," she said. "The weather in the summer is going to be pretty critical."

ORIGIN PROCESSING

Going forward, Kleemans said Cargill saw opportunity in processing in producer countries and was looking to increase its grinding capacity by an average of 2-3 percent per year, in step with global growth.

"We're looking at further growth and Africa is on our radar from a processing growth perspective," Kleemans said, noting Cargill currently grinds about 800,000 tonnes of cocoa per year.

Globally, processing in producer countries is set to hit two million tonnes this year, Kleemans said, amounting to about 46 percent of grinding.

"These are records and the percentage of grinding (in producer countries) has been growing steadily," she said. "This is an ongoing trend and as Cargill we want to continue to play an ongoing role in that."

Kleemans noted expanding processing in origin countries allowed the likes of Ghana and Ivory Coast to gain additional skills and diversify their incomes.

"Through diversification, we can then mitigate the volatility that exists in our market," she said.

She also said Cargill was still gauging the extent of Ivory Coast's plans to halt company schemes that distribute high yield seeds amid concerns they may contribute to oversupply.

"We're committed to sustainable cocoa development and solutions that work for all stakeholders," said Kleemans. "So if the government of Ivory Coast has concerns, for sure, we want to sit at a table and understand them."

However, Cargill maintains higher cocoa yields on less land are key to improving farmer incomes and Kleemans noted tackling illegal encroachment into forests must be halted to curb oversupply. (Reporting by Ana Ionova; Editing by Andrew Heavens and Mark Potter)

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