Cocoa Market Faces Pressures amid Weather and Export Concerns

Current Price Trends and Market Influences

March ICE NY cocoa (CCH25) is down -101 (-0.92%), while March ICE London cocoa #7 (CAH25) has decreased by -94 (-1.08%). Today, cocoa prices are showing moderate declines due to beneficial rains in West Africa. Increased soil moisture levels are favorable for cocoa tree growth, leading to reports from Ivory Coast and Ghana that recent rains have improved their cocoa crops and encouraged re-flowering of the trees.

Export Data and Weather Impacts

Despite the positive crop conditions, cocoa prices are not falling further due to worries about slowing exports from Ivory Coast. According to government data released on Monday, farmers have shipped 1.29 MMT of cocoa this marketing year. This figure marks a significant +22% increase from last year; however, the growth rate has decreased from the 35% rise recorded in December.

Production Challenges from Harmattan Winds

Concerns remain surrounding crop production in West Africa. Forecaster Maxar Technologies has indicated that the current Harmattan winds are the driest seen in six years, which could adversely affect crop yields. Some cocoa farmers in Ivory Coast and Ghana have reported negative impacts on their trees, including yellowing leaves and withering pods, due to the harsh seasonal winds.

Global Supply Shortages and Inventory Levels

Worries about a potential increase in the global cocoa deficit are contributing to upward price pressures. The International Cocoa Organization (ICCO) revealed on January 24 that global cocoa stockpiles at the end of the 2023/24 season are estimated at 1.041 MMT, reflecting a -36% decrease year over year. This new data highlights that the ICO’s cocoa deficit estimate for 2023/24 could reach -478,000 MT, exceeding initial forecasts.

US Cocoa Inventories and Major Purchases

US cocoa inventories monitored by ICE have been on a downward trend for the past 1.5 years, recently hitting a 21-year low of 1,263,493 bags as of January 24. Adding to the market dynamics, Hershey Co. has sought approval from the CFTC to purchase over 90,000 MT of cocoa via the ICE Futures Exchange. This purchase would exceed the current limit allowed by the exchange and reflects the severe global cocoa shortages, making exchange delivery cheaper than buying directly from the physical market.

Market Shifts and Historical Context

On December 18, the NY Cocoa contract reached an all-time high for nearest futures, while London Cocoa hit a nine-month peak, driven by deteriorating mid-crop conditions in West Africa. Maxar Technologies emphasized that dry weather could complicate the early development of the mid-year cocoa crop set for harvest in April. Furthermore, the ICCO updated its 2023/24 global cocoa deficit estimate on November 22, now projecting a deficit of -478,000 MT, marking the largest deficit in over six decades.

Demand Concerns amid High Prices

Conversely, worries about decreasing demand due to high cocoa prices linger. The European Cocoa Association reported a -5.3% year-over-year decline in Q4 cocoa grindings across Europe, totaling 331,853 MT—the lowest figure in four years. Similarly, cocoa grindings in Asia fell -0.5% to 210,111 MT, while North America experienced a -1.2% decrease, also the lowest in four years.

Regional Production Developments

Bearish trends in cocoa prices can also be attributed to increased exports from Nigeria, the sixth-largest global cocoa producer. Nigeria’s cocoa exports saw an impressive rise of +87% year-over-year in December, totaling 46,696 MT.

Production Outlook from Major Producers

On the downside, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to between 2.1 and 2.2 MMT, up from a previous forecast of 2.0 MMT. Conversely, Ghana’s Cocoa Board announced on August 20 a reduction in its 2024/25 cocoa production estimate to 650,000 MT, down from 700,000 MT. Harsh weather and crop diseases affected Ghana’s 2023/24 cocoa harvest, which plummeted to a 23-year low of 425,000 MT.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data presented are for informational purposes only. More information can be found by viewing the Barchart Disclosure Policy here.

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