Market Volatility and Long Liquidation Pressure
Cocoa prices are exhibiting mixed signals today as the market consolidates below record highs reached earlier this week. The recent rally in the dollar index to a 6-week high has sparked long liquidation pressure in cocoa futures, contributing to the current market volatility.
Shrinking Global Cocoa Supplies Fuel Price Surge
Record-high cocoa prices posted on Tuesday are a direct result of concerns over shrinking global cocoa supplies. Ghana’s Cocoa Board (Cocobod) announced a significant reduction in cocoa harvest forecasts due to extreme weather conditions and crop diseases, leading to a 22-year low in production.
In addition, lower cocoa production in the Ivory Coast, the world’s leading producer, has further bolstered cocoa prices. Recent data from the Ivory Coast government revealed a 28% decline in cocoa shipments to ports compared to the previous year, with projected production levels hitting an 8-year low.
Tightness in Supply Chain and Growing Concerns
Concerns over the West African mid-crop, which forms a crucial part of annual cocoa harvests, are escalating due to reduced production forecasts. Projections for Ghana, the Ivory Coast, and Nigeria all point towards significant cutbacks, leading to a scarcity in cocoa supplies and prompting global cocoa grinders to pay premiums in the cash market to secure their needs.
The worst cocoa supply shortage in 40 years has driven cocoa prices up by 133% since the beginning of the year, intensifying worries about potential defaults on supply contracts by West African cocoa suppliers.
Global Deficit and Market Resilience
A global cocoa deficit is looming as unfavorable growing conditions and crop diseases persist in West African farms, curtailing cocoa production levels. The International Cocoa Organization (ICCO) projects a widening deficit for the 2023/24 season, with global cocoa production anticipated to decline significantly year-over-year.
The recent El Nino weather event, combined with previous instances of adverse weather patterns in the region, has further exacerbated supply concerns and driven cocoa prices to record highs.
Impact on Global Demand and Forward Sales Halt
Record-high cocoa prices are beginning to impact global demand, as evidenced by declining cocoa grindings in North America, Asia, and Europe. The halt on forward cocoa sales for the 2024/25 season by the Ivory Coast regulator reflects the uncertainties surrounding future cocoa production levels, adding to existing supply concerns.
The current price surge in cocoa is set to reshape market dynamics and investor strategies, with potential ripple effects on various sectors of the global economy.
For more information about cocoa, visit 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.
