Cocoa Prices Surge Amid Supply Concerns and Deteriorating Crop Outlook
Market Gains Driven by West African Weather Challenges
March ICE NY cocoa (CCH25) is up +455 (+4.20%), while March ICE London cocoa #7 (CAH25) increased by +304 (+3.53%). Cocoa prices have continued their upward trend, marking a six-week rally with both March NY and March London cocoa reaching new contract highs. The surge in prices is largely attributed to a worsened outlook for the mid-crop harvest in West Africa.
Dry Conditions and Low Inventories Impacting Market
Maxar Technologies has reported that dry weather in West Africa could hinder the early growth of this year’s cocoa crop, which is typically harvested in April. Moreover, the seasonal Harmattan winds could exacerbate the situation. In addition, shrinking global cocoa stockpiles are pushing prices higher. Ice-monitored inventories in US ports have been declining for over a year and recently fell to a 20-year low of 1,438,699 bags.
International Cocoa Association’s Revised Forecasts Raise Alarm
On November 22, the International Cocoa Association (ICCO) adjusted its 2023/24 global cocoa deficit estimate from -462,000 MT to -478,000 MT, marking the largest deficit in over six decades. The ICCO also lowered its cocoa production forecast for the same period to 4.380 MMT, down 13.1% from last year.
Weather-Related Challenges Affecting Quality
West Africa has experienced heavy rainfall, resulting in high mortality rates of cocoa buds and leading to a significant increase in prices. Flooding in the Ivory Coast has also led to crop quality issues and higher disease risks. The recently harvested beans from the region indicate lower quality, with a count of about 105 beans per 100 grams. The Ivory Coast cocoa regulator permits exports of beans with counts ranging from 80 to 100, with higher quality beans having fewer counts.
Increased Supply and Mixed Demand Signals
A rise in cocoa supplies from the Ivory Coast is contributing to bearish pressure on prices. According to government data, farmers shipped 819,425 MT of cocoa to ports from October 1 to December 8, representing an increase of 34.5% compared to the same period last year. Meanwhile, Nigeria’s cocoa exports, the sixth-largest producer globally, rose by 15% year-on-year to 20,508 MT.
Future Projections and Demand Trends
On a somewhat contradictory note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, has raised its production estimate for 2024/25 to between 2.1-2.2 MMT, up from an earlier forecast of 2.0 MMT. Recent cocoa demand data shows a mixed picture: the National Confectioners Association reported a 12% increase in North American cocoa grindings for Q3, while the European Cocoa Association noted a decline of 3.3%. In contrast, Q3 cocoa grindings in Asia saw a modest rise of 2.6%.
Ghana’s Production Challenges
Cocoa prices found additional support after Ghana’s Cocoa Board reduced its 2024/25 production estimate to 650,000 MT from a previous forecast of 700,000 MT due to adverse weather and crop diseases. Ghana’s 2023/24 cocoa harvest has also suffered, dropping to a 23-year low of 425,000 MT. As the second-largest cocoa producer in the world, these challenges significantly impact the overall market dynamics.
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.
