Cocoa Prices Falter Under Dollar’s Might
May ICE NY cocoa (CCK24) on Tuesday closed down -145 (-1.77%), and May ICE London cocoa #7 (CAK24) closed down -113 (-1.66%).
Facing a resurging dollar, cocoa prices were unable to sustain their early rise, succumbing to moderate losses during Tuesday’s trading session. The dollar index (DXY00) surged to a two-week peak, triggering a wave of long liquidation in cocoa futures.
Fueling the Rally to Record Highs
This week, cocoa prices extended a parabolic rally, breaking new records and stirring up an air of excitement among investors. The surge was fueled by persistent concerns surrounding tight cocoa supplies from West Africa.
The Ivory Coast, the world’s largest cocoa producer, is grappling with dwindling cocoa production, a key driver behind the bullish momentum in cocoa prices. Recent government data highlighted a 28% decline year-over-year in cocoa shipments from Ivory Coast farmers, painting a concerning picture of the supply side. Anticipation of a steep 33% drop in the upcoming mid-crop season is adding fuel to the fire, with projected cocoa production for 2023/24 dwindling to an 8-year low of 1.75 MMT.
To add to the bullish sentiment, ICE-monitored cocoa inventories in U.S. ports plummeted to a three-year low on Monday, further tightening the supply outlook.
A Global Deficit Looms Large
Despite the supply woes, the International Cocoa Organization (ICCO) projected a widening global cocoa deficit for 2023/24, estimating a deficit of -374,000 MT compared to -74,000 MT in the previous year. With global cocoa production expected to drop by 11% year-over-year to 4.45 MMT, coupled with a nearly 5% decline in cocoa grindings, the stock-to-grindings ratio for 2023/24 could hit a 40-year low.
Unfavorable weather conditions and crop diseases in West Africa have been substantial deterrents to cocoa production, propelling cocoa prices to meteoric heights. The impending global deficit is a stark reminder of the insufficiency in current cocoa production levels to meet the ever-growing demand.
Quelling Demand and Halting Sales
The narrative is not without its twists, as smaller exports from Nigeria, the fifth largest cocoa producer globally, are adding pressure on prices following a 15% year-over-year decline in January cocoa exports.
In a surprising move, the Ivory Coast cocoa regulator suspended forward cocoa sales for the 2024/25 season on January 25, awaiting a clearer picture of cocoa production expectations. This decision has ruffled feathers in the cocoa market, intensifying supply concerns.
Staggering cocoa prices are now beginning to impact global demand, with reports indicating a decline in cocoa grindings across North America, Asia, and Europe during the fourth quarter.
More Cocoa News from Barchart
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.
