Cocoa Market Update: Prices Fluctuate Amid Weather and Supply Concerns

Mixed Trends in Cocoa Prices, Factors at Play

December ICE NY cocoa (CCZ24) is currently down -69 (-0.79%), while December ICE London cocoa #7 (CAZ24) is up +51 (+0.73%). Cocoa prices are showing varied results today; London cocoa hit a four-month high, whereas NY cocoa retreated from a two-month peak. This decline in NY cocoa comes after a rebound in the dollar (DXY00) triggered long liquidation in cocoa futures. Interestingly, London cocoa maintained its gains boosted by a drop in the British pound (^GBPUSD), which fell to a 4-1/2 month low, enhancing cocoa priced in sterling.

EU Regulations and Weather Impact Supply

Cocoa prices benefit from support stemming from last Thursday’s EU Parliament vote on deforestation regulations. If the EU fails to reach consensus on these rules before the upcoming deadline, the EU Deforestation Regulation (EUDR) will take effect. This regulation mandates that companies ensure their imports were not sourced from deforested or degraded areas after 2020, potentially restricting cocoa supplies from affected countries.

This week, cocoa prices have also surged due to adverse weather conditions in West Africa. According to forecaster Maxar Technologies, parts of Ghana and Nigeria are facing hot and dry weather that could negatively affect the upcoming cocoa mid-crop, which starts in April. Additionally, heavy rains in the Ivory Coast have led to flooding, which poses risks to crop quality and increases susceptibility to disease. Recent harvesting from the Ivory Coast reveals lower quality beans, with approximately 105 beans per 100 grams, whereas the best quality typically has a lower count of 80 to 100 beans.

Global Cocoa Inventory Declines

Falling global cocoa stockpiles have also positively impacted prices. ICE-monitored cocoa inventories in US ports have been decreasing for 17 months, reaching a 19-year low of 1,667,279 bags as of Thursday.

Another supportive factor comes from Barry Callebaut, a leading chocolate producer. Its CEO noted that while cocoa crops in West Africa show “significant improvement compared to last year,” they still lag behind the levels of the 2022/23 season.

Increasing Supplies from the Ivory Coast

On the downside, news regarding the Ivory Coast’s cocoa harvest indicates an increase in supplies. Current government data reveals that from October 1 to November 10, Ivory Coast farmers have shipped 454,624 metric tons (MT) of cocoa to ports, marking a 30% increase from the 348,560 MT shipped during the same period last year. As the world’s largest cocoa producer, the Ivory Coast’s output significantly impacts global prices.

Mixed Global Demand Signals

Recently published data on global cocoa demand presents a mixed picture. The National Confectioners Association reported that North American cocoa grindings rose by 12% year-on-year to 109,264 MT in Q3. The Cocoa Association of Asia also noted a growth of 2.6% year-on-year in Q3 cocoa grinding, totaling 216,998 MT. However, the European Cocoa Association reported a decline in Q3 grindings, down 3.3% year-on-year to 354,335 MT.

Notably, Ghana’s Cocoa Board recently lowered its 2024/25 cocoa production estimate to 650,000 MT from 700,000 MT, attributing the decrease to adverse weather and crop diseases. The 2023/24 cocoa harvest in Ghana dropped to a 23-year low of 425,000 MT. As the second-largest cocoa producer worldwide, Ghana’s challenges influence market dynamics as well.

Rising Output in other Countries

Cocoa production is on the rise in Cameroon, the world’s fifth-largest producer. According to the National Cocoa and Coffee Board, production for 2023/24 has climbed by 1.2% year-on-year to 266,725 MT. Additionally, Nigeria’s cocoa exports witnessed a 6.8% year-on-year increase in August, reaching 14,984 MT, solidifying Nigeria’s position as the sixth-largest cocoa producer.

Projected Global Cocoa Deficit

In a notable bullish factor, the International Cocoa Association (ICCO) recently raised its 2023/24 global cocoa deficit estimate to -462,000 MT from May’s -439,000 MT, marking the largest deficit in over 60 years. Furthermore, the ICCO reduced its global cocoa production estimate to 4.330 million metric tons (MMT) from 4.461 MMT. The forecast also includes a projected global cocoa stocks/grindings ratio at a concerning 46-year low of 27.4%.

On the date of publication, Rich Asplund did not hold (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. Please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.