Strong Cocoa Prices Surge on Supply Concerns and Weather Challenges
Cocoa Market Overview: NY and London Prices Hit New Highs
December ICE NY cocoa (CCZ24) today is up +2426 (+3.08%), and December ICE London cocoa #7 (CAZ24) is up +208 (+3.33%).
Weather Woes Drive Cocoa Prices Higher
Cocoa prices today continued this week’s significant rally, with NY cocoa reaching a 7-week high and London cocoa achieving a 3-month peak. This week’s surge can be attributed to adverse weather in West Africa. Forecaster Maxar Technologies reported that parts of Ghana and Nigeria are facing hot and dry conditions, which could potentially harm the cocoa mid-crop set to start in April. In addition, heavy rains in the Ivory Coast have caused flooding, raising disease risks and impacting crop quality. The recently harvested beans in the Ivory Coast show lower quality, with counts at approximately 105 beans per 100 grams. The Ivory Coast’s cocoa regulator allows exporters to purchase beans with counts between 80 to 100, with lower counts indicating higher quality cocoa.
Inventory Declines and Market Sentiment
Declining global cocoa stockpiles are also supporting prices. ICE-monitored cocoa inventories at U.S. ports have steadily decreased for the past 17 months, hitting a 19-year low of 1,690,008 bags as of Tuesday. Moreover, last Thursday, the CEO of Barry Callebaut, a major global chocolate producer, noted that while cocoa crops in West Africa show “significant improvement versus last year,” they are still below the levels recorded in the 2022/23 season.
Harvest Progress in Ivory Coast
On the flip side, there are reports that the pace of cocoa harvest in the Ivory Coast is accelerating, which is increasing supply. Government data released today stated that farmers shipped 454,624 MT of cocoa from October 1 to November 10, an increase of 30% from 348,560 MT during the same period last year. The Ivory Coast is recognized as the world’s largest cocoa producer.
Production Estimates and Market Reactions
On October 18, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT, an increase from the previous forecast of 2.0 MMT made in June. This announcement had a dampening effect on cocoa prices.
Mixed Global Demand Signals
Global demand for cocoa has shown mixed signals recently. The National Confectioners Association reported a 12% annual increase in North American cocoa grindings for Q3, reaching 109,264 MT. Similarly, the Cocoa Association of Asia indicated a 2.6% annual rise in Asian cocoa grinding to 216,998 MT. Conversely, the European Cocoa Association noted a 3.3% yearly decline in European Q3 cocoa grindings, totaling 354,335 MT.
Ghana’s Production Cuts
Cocoa prices found some support after Ghana’s Cocoa Board (Cocobod) cut its 2024/25 Ghana cocoa production estimate to 650,000 MT from 700,000 MT due to bad weather and crop disease challenges. This year’s cocoa harvest in Ghana, the world’s second-largest cocoa producer, is expected to reach a 23-year low of 425,000 MT, with the 2024/25 harvest commencing in October.
Rising Production in Cameroon and Nigeria
Meanwhile, an increase in cocoa production from Cameroon, the world’s fifth-largest cocoa producer, presents a bearish factor for prices. On August 21, the National Cocoa and Coffee Board of Cameroon reported a 1.2% annual rise in cocoa production to 266,725 MT for the 2023/24 (August-July) season. Additionally, Nigeria’s cocoa exports were up by 6.8% year-on-year in August, reaching 14,984 MT. Nigeria ranks as the sixth-largest cocoa producer worldwide.
Global Cocoa Deficit Deepens
One bullish indicator is the International Cocoa Association (ICCO), which on August 30 raised its 2023/24 global cocoa deficit estimate to -462,000 MT, up from May’s estimate of -439,000 MT, marking the largest deficit in over 60 years. The ICCO also revised its 2023/24 cocoa production estimate downward to 4.330 MMT, a reduction from May’s forecast of 4.461 MMT. The projected global cocoa stocks/grindings ratio is now at a 46-year low of 27.4%.
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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
The views and opinions expressed herein belong to the author and do not necessarily reflect those of Nasdaq, Inc.
