Cocoa Prices Dip Amid Demand Concerns and Supply Challenges
March ICE NY cocoa (CCH25) is down -280 (-2.59%), while March ICE London cocoa #7 (CAH25) has decreased by -187 (-2.14%).
Declining Demand Signals Trouble for Cocoa Market
Prices for cocoa have slipped to a one-week low as high costs begin to impact consumer demand. The European Cocoa Association reported a drop of -5.3% year-on-year in Q4 European cocoa grindings, totaling 331,853 MT, marking the lowest level in over four years. Similarly, the Cocoa Association of Asia noted that Asian cocoa grindings also fell, decreasing -0.5% y/y to 210,111 MT, the lowest in four years.
Stockpile Decrease and Export Worries Provide Some Support
Decreasing global cocoa stockpiles offer some price support. ICE-monitoring indicates that cocoa inventories in U.S. ports have been declining steadily for the past one-and-a-half years, recently hitting a 20-year low of 1,300,731 bags. Concerns regarding slowed cocoa exports from Ivory Coast further amplify these supply challenges. Although government data showed a 27% increase in shipments to 1.16 MMT this marketing year, this growth has slowed compared to a 35% rise just a month ago.
Hershey Seeks Approval for Large Cocoa Purchase
Support for cocoa prices was also seen last week when Hershey Co. announced its intention to seek CFTC approval for purchasing a substantial quantity of cocoa on the ICE Futures Exchange. Reports indicate that Hershey aims to acquire over 90,000 MT of cocoa—more than nine times the exchange’s current limit. This move reflects the severe global cocoa shortage, which has made purchasing through the New York exchange more economical than the physical market.
Weather Woes Affect Crop Production in West Africa
Farmers in the Ivory Coast and Nigeria are reporting negative effects on cocoa crops due to the seasonal dry and dusty Harmattan winds. Reports of yellowing leaves and wilting cocoa pods have surfaced, raising concerns over West African crop production. Just recently, on December 18, NY Cocoa reached an all-time nearest-futures high, while London Cocoa hit an 8.5-month nearest-futures high, attributed to the deteriorating mid-crop outlook in West Africa. Maxar Technologies has forecasted that dry conditions in the region will further hamper crop development before the April harvest.
Global Cocoa Deficit Hits Record Levels
On November 22, the International Cocoa Association (ICCO) raised its estimate for the global cocoa deficit in 2023/24 to -478,000 MT from a previous figure of -462,000 MT, marking the largest deficit in over 60 years. ICCO also revised its cocoa production estimate for the same season down to 4.380 MMT, reflecting a -13.1% decrease from the previous year. The anticipated global stocks/grindings ratio stands at 27.0%, the lowest in 46 years.
Quality Concerns Arise Amid Heavy Rains
Heavy rainfall in West Africa has resulted in increased disease risks and compromised crop quality. Recent findings indicate that cocoa beans from the Ivory Coast exhibit lower quality, with about 105 beans per 100 grams — higher than the acceptable limit for top-grade beans, which normally ranges from 80 to 100. Meanwhile, stronger export figures from Nigeria, the sixth-largest cocoa producer, revealed a +35% rise in November exports to 38,015 MT, which could apply downward pressure on prices.
Ivorian Production Estimates Modified Amid Mixed Signals
Contrarily, the Ivorian cocoa regulator, Le Conseil Cafe-Cacao, has revised its production forecast for 2024/25 upwards to between 2.1-2.2 MMT from June’s 2.0 MMT estimate. Additionally, Ghana’s Cocoa Board (Cocobod) cut its 2024/25 production estimate down to 650,000 MT from 700,000 MT due to adverse weather conditions and crop diseases, resulting in a 23-year low harvest of 425,000 MT for 2023/24 in the world’s second-largest cocoa producing country.
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
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
