Cocoa Prices Drop Following Record Highs Despite Mixed Demand Signals

March ICE NY cocoa (CCH25) has fallen by -312 (-2.58%), while March ICE London cocoa #7 (CAH25) is down -173 (-1.79%).

Cocoa Prices Decline Amid Long Liquidation Pressure

Current cocoa prices are sharply lower, extending declines from Thursday. The drop comes after NY cocoa reached an all-time high and London cocoa hit an eight-month peak earlier in the week. Factors behind the earlier price rally included concerns over the West African cocoa mid-crop outlook. Maxar Technologies indicated that dry weather conditions may hinder the early development of the mid-year cocoa harvest, expected in April, with the seasonal Harmattan winds potentially worsening the scenario.

Ghana Cuts Harvest Forecast as Global Stockpiles Dwindle

On a positive note, Ghana has reduced its cocoa harvest forecast for 2024/25 by -5% due to weather-related concerns, marking the second revision for this season. Diminishing global cocoa stockpiles also bolster prices, with ICE-monitored cocoa inventories in US ports having decreased for the past 1.5 years. Recently, these inventories fell to a 20-year low of 1,386,781 bags.

ICCO Adjusts Cocoa Deficit Estimates Higher

Another factor pushing cocoa prices higher is the International Cocoa Association (ICCO), which on November 22 raised its estimate for the 2023/24 global cocoa deficit to -478,000 MT from -462,000 MT, indicating the largest deficit in over 60 years. Additionally, ICCO cut its 2023/24 cocoa production estimate to 4.380 MMT from a previous estimate of 4.461 MMT, representing a 13.1% decrease compared to the previous year. The ICCO has projected a stocks-to-grindings ratio of 27.0%, a level not seen in 46 years.

West African Weather Impacts Crop Quality

Heavy rainfall in West Africa has led to reports of high mortality rates among cocoa buds and has significantly impacted crop quality. Recent harvests from the Ivory Coast show lower quality, with bean counts around 105 beans per 100 grams. The Ivory Coast’s cocoa regulator permits exporters to purchase beans with counts ranging from 80 to 100, with lower counts being indicative of higher quality cocoa.

Increase in Supply from the Ivory Coast and Nigeria

An upturn in cocoa supplies from the Ivory Coast, the world’s largest cocoa producer, is pressuring prices downward. Government figures from Monday reported that farmers shipped 894,009 MT of cocoa from October 1 to December 15, up +33% from 671,544 MT shipped during the same period last year.

Nigeria, the sixth-largest cocoa producer, also experienced a rise in exports, with October cocoa shipments increasing by +15% year-on-year to 20,508 MT. On the downside, the Ivory Coast’s regulator, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT, up from a June prediction of 2.0 MMT.

Mixed Signals on Global Cocoa Demand

Recent reports on global cocoa demand have presented a mixed picture. The National Confectioners Association noted on October 17 that North American cocoa grindings rose +12% year-on-year to 109,264 MT. Conversely, the Cocoa Association of Asia reported a +2.6% year-on-year increase in Q3 grindings, reaching 216,998 MT. However, the European Cocoa Association indicated a decline, with European cocoa grindings falling -3.3% year-on-year to 354,335 MT.

Ghana’s Production Estimate Lowered

Support for cocoa prices emerged after the Ghana Cocoa Board (Cocobod) on August 20 reduced its 2024/25 production estimate to 650,000 MT from a June forecast of 700,000 MT due to adverse weather and crop diseases. Ghana, recognized as the world’s second-largest cocoa producer, saw its 2023/24 harvest drop to a 23-year low of 425,000 MT.

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.