Market Surges: Cocoa Prices Climb Amid Global Supply Concerns
Report Shows Mixed Grindings Data but Continued Demand
March ICE NY cocoa (CCH25) has surged by +713 (+6.79%), while March ICE London cocoa #7 (CAH25) increased by +414 (+4.85%).
Today’s cocoa price rise is notable, driven by North American Q4 cocoa grindings that fell less than those in Europe and Asia. This indicates strong demand even as prices remain high. The National Confectioners Association reported a -1.2% year-on-year decline in North American cocoa bean grindings, totaling 102,761 metric tons.
The decline in global cocoa stockpiles has also played a role in supporting prices. ICE-monitored cocoa inventories in U.S. ports have steadily decreased over the past eighteen months, hitting a 21-year low of 1,292,153 bags on Thursday.
Last Thursday, concerns about high prices leading to “demand destruction” caused cocoa prices to dip to one-week lows. The European Cocoa Association reported a -5.3% year-on-year drop in Q4 European cocoa grindings, reaching 331,853 metric tons, the lowest level in over four years. Similarly, the Cocoa Association of Asia indicated that Q4 Asian cocoa grindings decreased by -0.5% year-on-year to 210,111 metric tons, also the lowest in four years.
Concerns are also mounting over slowing cocoa exports from the Ivory Coast, which could tighten global supplies. While government data released Monday showed that Ivory Coast farmers shipped 1.16 million metric tons of cocoa to ports, up more than +27% from last year, the increase represents a slowdown from the 35% rise seen the month prior.
Supporting the market’s strength, Hershey Co. recently pursued approval from the Commodity Futures Trading Commission (CFTC) to acquire a significant quantity of cocoa through the ICE Futures Exchange due to limited global supplies. Reports from Bloomberg suggest that Hershey aims to secure more than 90,000 metric tons of cocoa, far exceeding the current exchange limit. The global cocoa shortage has become so pressing that buying cocoa through the New York exchange is now cheaper than in the physical market.
Crop production challenges in West Africa are adding further support to cocoa prices. Farmers in the Ivory Coast and Nigeria have reported that cocoa trees are starting to feel the adverse effects of the seasonal dry and dusty Harmattan winds, resulting in yellowing leaves and shriveling cocoa pods.
On December 18, NY Cocoa hit an all-time high for nearest-futures, while London Cocoa reached an 8-1/2 month high following the bleak outlook for the West African cocoa mid-crop. Maxar Technologies previously warned that dry conditions could impede the early development of the mid-year cocoa crop, expected to be harvested in April, with the arrival of Harmattan winds potentially exacerbating the situation.
In a bullish indication, the International Cocoa Organization (ICCO) raised its global cocoa deficit estimate for 2023/24 to -478,000 metric tons in November, up from -462,000 metric tons earlier in the year. This marks the largest deficit in over six decades. Additionally, ICCO revised its 2023/24 cocoa production estimate down to 4.380 million metric tons, a decline of -13.1% from the previous year. The organization also projected a 2023/24 global cocoa stocks-to-grindings ratio of 27.0%, marking a 46-year low.
Moreover, heavy rainfall in West Africa has reportedly led to increased mortality rates among cocoa buds, pushing cocoa prices higher. The flooding in Ivory Coast has raised disease risks and affected the quality of crops. Recently harvested cocoa beans exhibit lower quality, with counts nearing 105 beans per 100 grams. The Ivory Coast’s cocoa regulator allows for purchases of beans with counts ranging from 80 to 100 for optimal quality.
Stronger cocoa exports from Nigeria, the world’s sixth-largest cocoa producer, present bearish signals. In November, Nigeria’s cocoa exports rose by +35% year-on-year, reaching 38,015 metric tons.
Conversely, on October 18, the Ivory Coast regulator, Le Conseil Cafe-Cacao, adjusted its 2024/25 cocoa production estimate upwards to between 2.1 and 2.2 million metric tons, up from a June forecast of 2.0 million metric tons.
In support of cocoa prices, Ghana’s Cocoa Board (Cocobod) cut its 2024/25 Ghana cocoa production estimate to 650,000 metric tons from an earlier projection of 700,000 metric tons, due to adverse weather conditions and crop diseases. Ghana is renowned as the world’s second-largest cocoa producer.
On the date of publication, Rich Asplund did not hold positions (either directly or indirectly) in any of the securities mentioned in this article. All information and data in this article are for informational purposes. For more details, please refer to the Barchart Disclosure Policy here.
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