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Exploring the Cocoa Price Rollercoaster: A Twisted Tale of Supply and Demand

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Cocoa enthusiasts had a bittersweet day on Wednesday as May ICE NY cocoa (CCK24) experienced a sharp -4.27% decline, while May ICE London cocoa #7 (CAK24) plunged by -6.17%. The cocoa market witnessed a tumultuous sell-off, sending prices spiraling down to 1-week lows. The recent fervent surge in cocoa values led to overbought conditions, triggering extensive long liquidation pressure.

Historical Context: The Great Supply Shortage of 2023

Just a day before this downward spiral, both NY Cocoa and London Cocoa hit new all-time highs, reflecting growing concerns about a dwindling global cocoa supply. The world of cocoa trading has been thrown into disarray as global cocoa grinders scramble to secure their cocoa stocks amidst fears of potential defaults by West African suppliers.

Seemingly marching to the beat of its drum, cocoa prices have soared a staggering +143% since the year’s inception. This meteoric rise is fueled by the most severe supply shortage seen in the past 40 years, catapulting cocoa values to unprecedented heights.

Impact of Regional Dynamics

The Ivory Coast, a cocoa titan, has witnessed a dramatic -27.8% decline in cocoa shipments to ports from the previous year. The country is bracing for an ominous forecast, with cocoa production projected to nosedive by a chilling -21.5%, reaching a nadir of 1.75 MMT – the lowest in 8 years.

Meanwhile, Ghana is grappling with its worst cocoa harvest in 22 years, predicting a dismal yield of 422,500 MMT to 425,000 MT. Extreme weather patterns and crop diseases have ravaged the Ghanaian cocoa crop, painting a grim reality for the once flourishing industry.

Tightening Global Cocoa Supplies

As the West African mid-crop looms menacingly on the horizon, projections for Ghana and the Ivory Coast have been brutally slashed. Ghana’s mid-crop estimations have plummeted to a mere 25,000 MT from an initial forecast of 150,000 MT. Similarly, the Ivory Coast anticipates a -33% reduction in mid-crop output, down to 400,000 MT.

Additionally, Nigeria, a key player in the cocoa market, is witnessing dwindling exports, with February shipments plummeting by -18% year-on-year to 26,103 MT. This downturn in exports from Nigeria is sending ripples of concern through the cocoa trading world.

Glimmers of Hope Amidst the Chaos

Against this tumultuous backdrop, ICE-monitored cocoa inventories have hit a 3-year low, standing at 4,054,349 bags as of March 18. The International Cocoa Organization (ICCO) further stoked the flames by projecting a widening global cocoa deficit of -374,000 MT in the upcoming year.

The incessant cocoa price rally, fueled by unfavorable weather conditions and crop diseases in West Africa, seems unrelenting. Experts predict that the global cocoa deficit will persist into the next year, driven by insufficient production to meet the relentless demand for this delectable commodity.

Dark Clouds on the Horizon

Record-high cocoa prices are beginning to take a toll on global demand. Recent reports indicate significant declines in cocoa grindings across North America, Asia, and Europe, painting a grim picture of waning consumer appetite for cocoa products.

Amidst all this chaos and uncertainty, the cocoa market remains a turbulent sea of highs and lows, with no end in sight to the rollercoaster ride of cocoa prices.

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.