Cocoa Prices Slide as West African Weather Conditions Raise Concerns
Weather Boosts Crop Development But Exports Slow Down
March ICE NY cocoa (CCH25) closed down -89 (-0.81%) on Tuesday, while March ICE London cocoa #7 (CAH25) fell -83 (-0.96%). Cocoa prices dropped moderately as beneficial rain in West Africa improved soil moisture, aiding cocoa tree development. Farmers in the Ivory Coast and Ghana reported that recent rainfall has favorably impacted their crops, leading to the re-flowering of cocoa trees.
Export Challenges and Growing Concerns
Despite the drop in prices, worries over declining cocoa exports from the Ivory Coast helped to partially support cocoa prices. According to government data released on Monday, farmers in the Ivory Coast have shipped 1.29 MMT of cocoa to ports this marketing year, representing a more than 22% increase from last year. However, this growth has slowed compared to a 35% increase seen in December.
Concerns about West African crop production bolster price expectations. Forecaster Maxar Technologies indicated that this year’s Harmattan winds are the driest seen in six years, negatively affecting crop conditions. Some cocoa farmers in the Ivory Coast and Ghana have observed that their trees are suffering from the dry and dusty winds, with yellowing leaves and withering cocoa pods.
Rising Global Cocoa Deficit Fuels Price Increases
Worries that the global cocoa deficit could expand are adding upward pressure on prices. On January 24, the International Cocoa Organization (ICCO) reported that their survey of global cocoa stockpiles at the end of the 2023/24 season indicated a total of 1.041 MMT. This is down 36% year-on-year and lower than an earlier estimate of 1.300 MMT. The updated figures signal that the ICO’s estimated global cocoa deficit for 2023/24 of -478,000 MT may be even greater than initially expected.
Tight global cocoa supplies are also supportive of higher prices. Cocoa inventories tracked by ICE in U.S. ports have declined steadily for the past year and a half, recently reaching a 21-year low of 1,263,493 bags as of January 24.
Hershey Co. Seeks Approval for Large Cocoa Purchase
Additional support for cocoa prices comes from Hershey Co., which is pursuing approval from the Commodity Futures Trading Commission (CFTC) for a significant cocoa purchase via the ICE Futures Exchange due to the tight global supply situation. Bloomberg reported that Hershey aims to secure over 90,000 MT of cocoa on ICE Futures US, which exceeds the current limits set by the exchange and the federal position limit of 4,900 contracts, or 49,000 MT. The shortages are driving prices such that it is now cheaper to buy through the New York exchange than the physical market.
Historical Context and Price Trends
In December, NY Cocoa hit an all-time nearest-futures high, while London Cocoa reached a nine-month nearest-futures high, triggered by deteriorating prospects for the West African mid-crop. Maxar Technologies has cautioned that dry conditions in the region will hinder the early growth of the cocoa harvest expected in April.
In a notable announcement, the ICCO raised its global cocoa deficit estimate on November 22 to -478,000 MT, the largest gap in over 60 years. Additionally, cocoa production estimates were reduced from 4.461 MMT to 4.380 MMT for the 2023/24 season, marking a reduction of 13.1% year-over-year. The ICCO also forecasts a stocks-to-grindings ratio of 27.0%, the lowest in 46 years.
Changing Demand Dynamics
Nevertheless, there are signs of weakening demand due to high cocoa prices. The European Cocoa Association reported a -5.3% drop in Q4 cocoa grindings to 331,853 MT, marking the lowest level in over four years. Similarly, the Cocoa Association of Asia observed a -0.5% decrease in Q4 cocoa grindings to 210,111 MT. North American cocoa grindings also fell -1.2% year-over-year to 102,761 MT during Q4.
On a bearish note, stronger cocoa exports from Nigeria, the world’s sixth-largest producer, contributed to downward price pressure. Nigeria’s cocoa exports surged in December, rising 87% year-over-year to 46,696 MT.
Industry Adjustments amid Global Challenges
On the other hand, the Ivory Coast’s regulatory body, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to between 2.1-2.2 MMT, up from a previous forecast of 2.0 MMT issued in June.
Support for cocoa prices was also seen after Ghana’s Cocoa Board (Cocobod) cut its cocoa production estimate for 2024/25 to 650,000 MT from the initial forecast of 700,000 MT due to adverse weather and crop diseases. The 2023/24 cocoa harvest in Ghana is expected to be notably low, at a 23-year low of 425,000 MT, impacting the world’s second-largest cocoa producer significantly.
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.
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