Prices Plummet as Cocoa Market Faces Dual Challenges
March ICE NY cocoa (CCH25) closed down -903 (-8.19%) on Friday, while March ICE London cocoa #7 (CAH25) dropped -1,017 (-11.13%).
Sharp Decline in Cocoa Prices
Cocoa prices experienced a significant drop on Friday, reaching their lowest levels in two and a half weeks. The decline was fueled by long liquidations and profit-taking by funds in a quiet holiday trading period. A surge in cocoa shipments from the Ivory Coast, which is the largest cocoa producer globally, further pressured cocoa futures. Reports indicated that between October 1 and December 15, Ivory Coast farmers shipped 970,945 metric tons of cocoa to ports—a remarkable 30% increase compared to 744,967 metric tons during the same period last year.
Nigeria’s Exports Add to Bearish Sentiment
In addition to the Ivory Coast’s strong shipments, robust cocoa exports from Nigeria, the sixth largest producer, dampened market optimism. Nigeria’s cocoa exports for November rose 35% year-on-year to 38,015 metric tons.
Market Reactions to West African Crop Conditions
Last Wednesday, New York Cocoa reached an all-time nearest-futures high, and London Cocoa achieved an eight-month nearest-futures high, primarily driven by disappointing projections for the West African mid-crop. Maxar Technologies warned that dry weather conditions in West Africa may hinder the early growth of the mid-year cocoa crop, which will be harvested in April. The arrival of seasonal Harmattan winds could further amplify these adverse conditions.
Declining Global Cocoa Inventories
Adding some bullish factors to the market, global cocoa inventories have been shrinking. As of Friday, ICE-monitored cocoa stocks held in US ports fell to a 20-year low of 1,367,084 bags after a steady decline over the past year and a half.
Concerns About Future Production
Ghana’s Cocoa Board recently lowered its 2024/25 cocoa harvest forecast by 5% due to weather-related worries, marking the second downward adjustment for the season. Moreover, the International Cocoa Organization (ICCO) raised its estimate for the global cocoa deficit for 2023/24 to 478,000 metric tons, up from 462,000 metric tons projected in May. This marks the largest deficit seen in over 60 years, and ICCO also cut its production estimate from 4.461 million metric tons to 4.380 million metric tons, reflecting a year-on-year decrease of 13.1%. The projected global cocoa stocks-to-grindings ratio has now reached 27.0%, the lowest it has been in 46 years.
Impact of Weather on Quality
Heavy rainfall in West Africa has resulted in high mortality rates of cocoa buds and influenced quality. In the Ivory Coast, flooding has exacerbated disease risks and lowered crop quality. Recently harvested beans have shown reduced quality, averaging about 105 beans per 100 grams. The Ivory Coast cocoa regulator permits the purchase of beans with counts of 80 to 100 or slightly more for every 100 grams, with lower counts indicating higher quality cocoa.
Future Prospects and Mixed Demand
On the flip side, the Ivory Coast’s cocoa production estimate for 2024/25 was raised to a range of 2.1-2.2 million metric tons, up from a previous forecast of 2.0 million metric tons. Recent demand data has been mixed: the National Confectioners Association reported a 12% year-on-year increase in North American Q3 cocoa grindings, reaching 109,264 metric tons. Similarly, the Cocoa Association of Asia noted a 2.6% increase in Q3 cocoa grindings to 216,998 metric tons. However, the European Cocoa Association revealed that European Q3 cocoa grindings fell 3.3% year-on-year to 354,335 metric tons.
Ghana’s Cocoa Board Adjustments
Cocoa prices found some support when Ghana’s Cocoa Board, on August 20, reduced its 2024/25 production estimate to 650,000 metric tons from 700,000 metric tons due to poor weather and disease pressures. Ghana, as the world’s second-largest cocoa producer, saw its 2023/24 cocoa harvest drop to a 23-year low of 425,000 metric tons.
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 are 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.
