Rising Cocoa Prices Fueled by Production Concerns in West Africa
Cocoa Futures on the Rise
December ICE NY cocoa (CCZ24) has increased by +181 (+2.15%), while December ICE London cocoa #7 (CAZ24) has risen by +245 (+3.50%) today. Prices are climbing, with London cocoa reaching a four-month high, driven by worries about cocoa crop production in West Africa.
Weather Woes Impacting Cocoa Production
Maxar Technologies has reported that dry conditions in West Africa may lead to “unfavorable soil moisture levels,” adversely affecting the mid-year cocoa crop. In Ghana and Nigeria, farmers are facing dry and hot weather that threatens the upcoming mid-crop, which begins in April. Additionally, heavy rains in the Ivory Coast have caused flooding, which may increase disease risk and impact crop quality. The recent harvest from the Ivory Coast shows lower quality beans, with a count of about 105 beans per 100 grams; the regulator allows counts between 80 and 100 or slightly more for every 100 grams for acceptable quality.
Global Cocoa Stockpiles Decline
Supporting higher cocoa prices is the decrease in global cocoa stockpiles. The U.S. cocoa inventories monitored by ICE have declined over 17 months, recently reaching a 19-year low of 1,656,818 bags.
Regulatory Changes and Market Reactions
Cocoa prices experienced a sharp decline on Monday as concerns eased regarding European Union deforestation regulations. The Intercontinental Exchange announced it would delay planned changes to its coffee and cocoa contracts until the end of 2025 due to uncertainties surrounding these regulations. As a result, last Friday NY cocoa reached a two-month high, and London cocoa hit a four-month high due to anticipated supply issues linked to potential deforestation regulations in cocoa-exporting countries.
Cocoa Supplies and Production Estimates
However, increased cocoa supplies from the Ivory Coast, the world’s largest producer, may exert downward pressure on prices. Data from Monday revealed that Ivory Coast farmers shipped 548,494 MT of cocoa from October 1 to November 17, marking a +32% increase from 415,523 MT during the same period last year. Additionally, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its 2024/25 production estimate to a range of 2.1-2.2 MMT, up from a June forecast of 2.0 MMT.
Mixed Demand for Cocoa
Global cocoa demand presents a mixed picture. The National Confectioners Association reported a +12% year-over-year rise in North American cocoa grindings for Q3, totaling 109,264 MT. Meanwhile, the Cocoa Association of Asia noted a +2.6% increase in Asian cocoa grindings to 216,998 MT. However, the European Cocoa Association recorded a -3.3% year-over-year drop in European cocoa grindings for Q3, totaling 354,335 MT.
Challenges in Ghana’s Cocoa Production
Ghana’s Cocoa Board (Cocobod) recently revised its 2024/25 cocoa production estimate down to 650,000 MT from an earlier forecast of 700,000 MT due to adverse weather and crop diseases. The 2023/24 harvest in Ghana fell to a 23-year low of 425,000 MT. As the world’s second-largest cocoa producer, Ghana’s 2024/25 harvest is set to begin in October.
Cameroon’s Increased Production
Cameroon’s cocoa production has increased, posing a bearish factor for global prices. The National Cocoa and Coffee Board announced that in the 2023/24 season, cocoa production rose by +1.2% year-over-year to 266,725 MT. Additionally, Nigeria, the sixth-largest cocoa producer, saw its cocoa exports rise by +6.8% year-over-year to 14,984 MT in August.
Global Supply Shortages
In a note of optimism, the International Cocoa Association (ICCO) raised its 2023/24 global cocoa deficit estimate to -462,000 MT, the largest deficit in over 60 years, up from -439,000 MT in May. The ICCO also cut its production forecast to 4.330 MMT from 4.461 MMT and projects a dramatic low in the global cocoa stocks/grindings ratio of 27.4%, a level not seen in 46 years.
On the date of publication, Rich Asplund did not hold (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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
