Rising Cocoa Prices Fuel Concerns of Global Shortage
On March 25, Cocoa prices witness a significant increase amid tight inventories and forecasted shortfalls.
March ICE NY cocoa (CCH25) is currently up +355 (+3.12%), and March ICE London cocoa #7 (CAH25) is up +146 (+1.61%). Cocoa prices have climbed due to expectations of a widening global cocoa deficit. Last Friday, the International Cocoa Organization (ICCO) reported that global cocoa stockpiles at the end of the 2023/24 season would total 1.041 million metric tons (MMT), down 36% from last year and lower than the earlier estimate of 1.300 MMT. This suggests that the ICO’s projection of a global cocoa deficit of 478,000 metric tons could be more severe than initially thought.
Declining cocoa inventories worldwide are affecting prices positively. ICE-monitored cocoa stocks in U.S. ports have been decreasing steadily for the past 1.5 years, recently reaching a 21-year low of 1,263,493 bags.
Earlier this week, cocoa prices dipped to one-week lows due to recent rains in West Africa that temporarily alleviated dry conditions, leading to some liquidation pressures. However, just last week, New York cocoa reached a three-week high, while London cocoa hit a five-week high amid concerns regarding crop production in West Africa. Forecaster Maxar Technologies indicated that this year’s Harmattan winds are the driest in six years, negatively impacting crop conditions. Reports from cocoa farmers in Ivory Coast and Ghana revealed yellowing leaves and wilting cocoa pods due to these harsh winds.
Constraints on global supply are further supported by reports of slowing cocoa exports from Ivory Coast. Despite government data indicating that farmers there shipped 1.24 MMT of cocoa to ports this marketing year—a 24% increase from last year—the pace of shipping has slowed down compared to a 35% increase seen the previous month.
Adding to the bullish sentiment, Hershey Co. has sought approval from the CFTC to purchase a large amount of cocoa via the ICE Futures Exchange due to the tight global supply. Bloomberg reported that Hershey aims to acquire over 90,000 MT of cocoa, significantly more than the nine times the current exchange limit. This demand underscores the severe shortages, as it is now cheaper to take delivery via the New York exchange than sourcing from the physical market.
On December 18, New York Cocoa hit an all-time nearest-futures high, while London Cocoa saw an 8.5-month nearest-futures high due to worsening conditions for the West African mid-crop outlook. Maxar Technologies warned that these dry spells could hinder the early development of the mid-year crop set to be harvested in April.
In addition to these challenges, the ICCO recently revised its 2023/24 global cocoa deficit forecast to 478,000 MT, a significant increase from May’s estimate of 462,000 MT—marking the largest deficit in over 60 years. Production estimates were also cut by the ICCO to 4.380 MMT, indicating a 13.1% year-over-year decline, alongside a projected stocks-to-grindings ratio of 27.0%, the lowest in 46 years.
On a bearish note, concerns have grown that rising prices may result in reduced demand for cocoa. According to the European Cocoa Association, cocoa grindings fell by 5.3% in Q4 compared to last year, reaching 331,853 MT—the lowest figure in over four years. Asian cocoa grindings also saw a slight decline of 0.5% to 210,111 MT, marking a similar trend. North American grindings fell by 1.2% to 102,761 MT.
Conversely, increased cocoa exports from Nigeria, the world’s sixth-largest producer, weigh down cocoa prices. Exports from Nigeria surged 87% year-over-year to 46,696 MT in December.
From a different perspective, the Ivory Coast’s regulator, Le Conseil Cafe-Cacao, raised its production estimate for 2024/25 to a range of 2.1-2.2 MMT, compared to an earlier estimate of 2.0 MMT in June.
Support for cocoa prices also materialized after Ghana’s Cocoa Board (Cocobod) reduced its 2024/25 cocoa production forecast to 650,000 MT from 700,000 MT due to adverse weather conditions and crop diseases, which contributed to a 23-year low in the Ghanaian cocoa harvest of 425,000 MT for 2023/24. Ghana remains the world’s second-largest cocoa producer.
On the date of publication, Rich Asplund did not hold any positions directly or indirectly in the securities mentioned in this article. All information and data provided are for informative purposes only. For further details, please view the Barchart Disclosure Policy here.
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