Cocoa Prices Surge Amid Supply Concerns as Hershey Eyes Major Purchases
Market Reactions to Hershey’s Intentions
March ICE NY cocoa (CCH25) closed up +474 (+4.53%) on Thursday, while March ICE London cocoa #7 (CAH25) rose by +289 (+3.39%). Cocoa prices experienced a notable increase as Hershey Co. seeks approval from the CFTC to acquire a significant amount of cocoa via the ICE Futures Exchange. Bloomberg reported that Hershey intends to buy over 90,000 MT of cocoa, a quantity more than nine times the current limit set by the exchange. This purchase also surpasses the federal position limit of 4,900 contracts (49,000 MT) established by the CFTC. With global cocoa supplies tightening, it has become more cost-effective for traders to take delivery through the New York exchange instead of the physical market.
Declining Inventories Impact Prices
Globally reduced cocoa stockpiles are contributing to the upward pressure on prices. Cocoa inventories in ICE-monitored US ports have declined consistently over the last 1-1/2 years, reaching a 20-year low of 1,317,220 bags on Thursday.
Market Volatility and Recent Trends
On Wednesday, cocoa prices dipped to one-week lows due to long liquidation after ICE Futures Europe tightened accountability levels. Starting January 13, traders must disclose more information about their positions if they exceed certain thresholds.
Earlier in the week, fears about declining cocoa exports from the Ivory Coast led to a surge in prices. While data shows that Ivory Coast farmers have shipped 1.11 MMT of cocoa so far this marketing year—up over +27% from last year—the growth rate has slowed compared to the previous month’s +35% increase.
Farmers Face Challenges
Cocoa prices are also supported by concerns about crop production in West Africa. Reports indicate that cocoa trees in Ivory Coast and Nigeria are suffering from the seasonal dry and dusty Harmattan winds, leading to yellowing leaves and withering cocoa pods.
Significant Market Changes
On December 18, NY Cocoa reached an all-time high for nearest futures, while London Cocoa hit an 8-1/2 month high amid concerns about the West African cocoa mid-crop outlook. Maxar Technologies has indicated that dry weather conditions in the region could adversely affect the early development of the mid-year cocoa crop, which is harvested in April.
Weather Impacts and Production Forecasts
On December 20, Ghana reduced its 2024/25 cocoa harvest forecast by -5% due to continued weather concerns, marking the second downward revision of the season. The International Cocoa Association (ICCO) has also raised its 2023/24 global cocoa deficit estimate to -478,000 MT, the largest deficit in over 60 years. Their production estimate has been cut to 4.380 MMT, down -13.1% year over year, and they project a stocks/grindings ratio of 27.0%, the lowest in 46 years.
Quality and Quantity of Cocoa Beans
Heavy rainfall in West Africa has produced high mortality rates among cocoa buds and worsened the overall quality of cocoa beans. Current harvests from the Ivory Coast yield lower-quality beans, with counts around 105 beans per 100 grams—higher counts indicate lower quality. The allowable count for exporters, per the Ivory Coast cocoa regulator, ranges from 80 to 100 beans for every 100 grams.
Export Trends and Challenges
Despite concerns, high cocoa shipments from the Ivory Coast, the world’s largest cocoa producer, have created bearish pressure on prices. Recent data shows that from October 1 to January 5, farmers shipped 1.11 MMT, which is up +27.5% compared to the same timeframe last year. Additionally, Nigeria’s cocoa exports saw a +35% increase year over year, totaling 38,015 MT.
Production Estimates Revised Upward
On a more pessimistic note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its production estimate for 2024/25 to a range of 2.1-2.2 MMT from June’s prediction of 2.0 MMT.
Mixed Demand Signals
Regarding global cocoa demand, recent news is mixed. The National Confectioners Association reported a +12% rise in North American Q3 cocoa grindings for this year, totaling 109,264 MT. Meanwhile, the Cocoa Association of Asia noted a +2.6% increase in Q3 Asian cocoa grinding at 216,998 MT. Conversely, the European Cocoa Association reported a -3.3% decline in European Q3 cocoa grindings to 354,335 MT.
Support for cocoa prices has come from Ghana’s Cocoa Board, which on August 20 revised its 2024/25 Ghana cocoa production estimate down to 650,000 MT from an earlier forecast of 700,000 MT, citing bad weather and crop diseases. This was compounded by a significant drop in Ghana’s 2023/24 cocoa harvest to a 23-year low of 425,000 MT, marking the country as the world’s second-largest cocoa producer.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
