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Unprecedented Cocoa Shortage Drives Prices to Record Highs

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Cocoa Prices Ease Amidst Dollar Strength

Thursday saw May ICE NY cocoa (CCK24) closing down -77 (-0.78%), while May ICE London cocoa #7 (CAK24) closed up +68 (+0.83%).  

Cocoa prices retreated slightly as they lingered beneath the unprecedented peak reached earlier in the week. Traders witnessed long liquidation pressures exerted on cocoa futures as the dollar index soared to a 6-week high, dimming the spirits of cocoa bulls.

Global Supply Woes Fuel Cocoa Rally

The relentless surge in cocoa prices can be traced back to concerns over dwindling global cocoa supplies, with Tuesday marking the pinnacle of the rally. Ghana’s Cocoa Board (Cocobod) declared a dramatic reduction in cocoa production forecasts for 2023/24, setting a 22-year low due to adverse climatic conditions and disease outbreaks devastating the crop.

Meanwhile, the Ivory Coast, the leading cocoa producer globally, reported a significant drop in cocoa shipments in the ongoing season compared to the previous year, setting the stage for a supply crunch. Projections for the approaching mid-crop harvest in West Africa have been revised downwards, painting an ominous picture for cocoa aficionados worldwide.

Cash Market’s Frenzy as Cocoa Prices Skyrocket

With cocoa supplies in jeopardy, global cocoa grinders are scrambling in the cash market to secure their share amidst fears of defaults from West African suppliers. The nearly unprecedented surge in cocoa prices, which have more than doubled since the beginning of the year, reflects the severity of the supply shortage – the worst seen in four decades.

Nigeria, the world’s fifth-largest cocoa producer, witnessed a significant decline in cocoa exports, further tightening the market. ICE-monitored cocoa inventories in the U.S. took a nosedive to a 3-year low, reflecting the urgency to secure cocoa supplies amid the scarcity.

Looming Deficit and Demand Conundrum

Forecasts of a widening global cocoa deficit in the upcoming season are adding fuel to the fire, further emboldening the bulls. The International Cocoa Organization (ICCO) has projected a substantial deficit, driven by an anticipated drop in global cocoa production and grindings.

Adverse conditions plaguing West African cocoa farms over the past year have severely hampered production, culminating in a staggering rise in cocoa prices. Market sentiments suggest that the global cocoa deficit may persist, given the inadequate current production levels to meet the escalating demand.

A Shaky Demand Landscape

Despite the soaring prices, signs of fatigue are starting to emerge in global cocoa demand. Reports from various cocoa associations have highlighted declines in cocoa grindings across North America, Asia, and Europe in the last quarter of the year, marking a potential shift in consumer behavior.

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 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.