Cocoa Prices Surge Amid Supply Concerns in West Africa
March ICE NY cocoa (CCH25) closed Friday at +479 (+4.43%), while March ICE London cocoa #7 (CAH25) ended the day up +304 (+3.53%).
Six-Week Rally Driven by Drought Warnings
In a notable six-week rally, cocoa prices surged on Friday, with March NY cocoa and March London cocoa reaching new contract highs. Meanwhile, December NY cocoa hit a 7-1/2 month high. This rise is attributed to issues affecting West Africa’s cocoa mid-crop, as Maxar Technologies indicates that dry conditions are likely to harm the early growth of the April-harvested mid-year cocoa. The anticipated arrival of the Harmattan winds could exacerbate these already difficult conditions.
Declining Stockpiles Fuel Increasing Prices
The drop in global cocoa inventories also adds upward pressure on prices. Cocoa stocks monitored by ICE at U.S. ports have been declining for the past 1.5 years, reaching a 20-year low of 1,430,974 bags as of Friday.
ICCO Adjusts Deficit Estimates
The International Cocoa Association (ICCO) further supported the price increase by revising its global cocoa deficit estimate for the 2023/24 season from -462,000 MT in May to -478,000 MT. This marks the largest deficit seen in over 60 years. Furthermore, ICCO trimmed its cocoa production forecast from 4.461 MMT to 4.380 MMT, reflecting a year-over-year decline of 13.1%. The stocks-to-grindings ratio is now projected at 27.0%, the lowest in 46 years.
Impact of Heavy Rain on Cocoa Quality
Heavy rainfall in West Africa has contributed to high mortality rates of cocoa buds and significantly impacted prices. In the Ivory Coast, flooding has led to increased disease risks and affected crop quality. Recent beans harvested from this region show lower quality, with approximately 105 beans per 100 grams. The Ivory Coast’s cocoa regulator allows the purchase of bean counts between 80 to 100 for every 100 grams, with lower counts generally indicating higher quality cocoa.
Increased Supply from Ivory Coast and Nigeria
Despite these challenges, there has been a notable increase in cocoa supply from the Ivory Coast, which is the world’s largest cocoa producer. Data released on Monday revealed that farmers shipped 819,425 MT of cocoa from October 1 to December 8, up 34.5% from 609,446 MT during the same period last year. Additionally, cocoa exports from Nigeria, the sixth-largest producer globally, rose by 15% year-over-year, totaling 20,508 MT in October.
Ivory Coast Production Estimates on the Rise
On a less favorable note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, has raised its 2024/25 cocoa production estimate ranging between 2.1-2.2 MMT, up from a June forecast of 2.0 MMT.
Mixed Global Demand Trends
Demand trends for cocoa have been mixed recently. While the National Confectioners Association noted a 12% year-over-year increase in North American Q3 cocoa grindings to 109,264 MT, the Cocoa Association of Asia reported a 2.6% increase to 216,998 MT. However, the European Cocoa Association indicated a decline of 3.3% in Q3 cocoa grindings to 354,335 MT.
Ghana’s Crop Decline Shapes Market Outlook
Support for cocoa prices was also observed after Ghana’s Cocoa Board (Cocobod) revised its 2024/25 cocoa production estimate down to 650,000 MT, reduced from a June forecast of 700,000 MT. Difficult weather conditions and crop disease have led Ghana’s 2023/24 cocoa harvest to reach a 23-year low of 425,000 MT. The harvest for the 2024/25 season in Ghana, the second-largest cocoa producer globally, is set to begin 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.
