Cocoa Prices Reach New Heights Amid Supply Concerns
Recent Market Activity
March ICE NY cocoa (CCH25) closed up +20 (+0.19%) on Wednesday, while March ICE London cocoa #7 (CAH25) rose +12 (+0.14%).
Prices for cocoa have recently increased, with March London cocoa reaching a new contract high and the nearest-futures NY cocoa (Z24) hitting a 6-month peak. Over the last six weeks, cocoa prices have surged, driven by supply chain issues and unfavorable weather conditions. However, Wednesday’s gains were muted as the dollar index (DXY00) climbed to a 2-week high.
Weather Woes Impact Production
The dramatic rise in cocoa prices can be attributed largely to troubling forecasts for the West African mid-crop. Maxar Technologies reports that dry weather in West Africa threatens to hinder the early growth of the cocoa crop expected to be harvested in April. Additionally, the onset of the Harmattan winds may exacerbate these negative conditions.
Global Stocks Decline
Another factor pushing prices upward is a decline in global cocoa stockpiles. ICE-monitored cocoa inventories in U.S. ports have been on a downward trend for the past 18 months, reaching a 20-year low of 1,446,597 bags on Wednesday.
Deficit Estimates Heighten Concerns
The International Cocoa Association (ICCO) revised its global cocoa deficit estimate for 2023/24 to -478,000 MT, up from -462,000 MT in May, marking the largest deficit in over 60 years. Furthermore, ICCO lowered its production estimate for the same period to 4.380 MMT, reflecting a year-on-year drop of 13.1%. The global cocoa stocks/grindings ratio is also expected to be at a 46-year low of 27.0%.
Quality Issues Arise
Heavy rainfall in West Africa has contributed to increased mortality rates among cocoa buds, further pushing cocoa prices higher. Specifically, fields in the Ivory Coast have experienced flooding, leading to a rise in disease risk and compromised crop quality. Recent cocoa beans from the Ivory Coast have exhibited lower quality, with approximately 105 beans counted per 100 grams. The country’s cocoa regulator permits exporters to purchase beans with counts of 80 to 100, with higher quality cocoa having a lower count.
Increasing Supply From Ivory Coast
Despite the rising prices, government data from the Ivory Coast indicates an uptick in cocoa supplies. Farmers reportedly shipped 819,425 MT of cocoa to ports between October 1 and December 8, marking a 34.5% increase from the same period last year.
Mixed Export Trends
Nigeria, the sixth-largest cocoa producer, also reported an increase in cocoa exports. For October, cocoa exports jumped 15% year-on-year to reach 20,508 MT. Conversely, there are also bearish indicators. On October 18, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to between 2.1-2.2 MMT, up from previous forecasts of 2.0 MMT.
Demand Displays Mixed Signals
The latest reports on global cocoa demand present a mixed picture. The National Confectioners Association noted on October 17 that North American Q3 cocoa grindings climbed by 12% year-on-year to 109,264 MT. However, the Cocoa Association of Asia stated that Q3 Asian cocoa grinding grew by only 2.6% to 216,998 MT. Unfortunately, European cocoa grindings declined by 3.3% year-on-year to 354,335 MT during the same period.
Challenges in Ghana
Support for cocoa prices was reinforced after Ghana’s Cocoa Board (Cocobod) cut its 2024/25 cocoa production estimate to 650,000 MT, down from an earlier forecast of 700,000 MT. Ghana, the world’s second-largest cocoa producer, has faced significant challenges, with its 2023/24 cocoa harvest plummeting to a 23-year low of 425,000 MT due to adverse weather and diseases. The country’s cocoa harvest begins in October.
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 are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
