Cocoa Prices Decline Following Dollar Rally and Supply Concerns
Market Outlook and Production Challenges Shake Cocoa Futures
March ICE NY cocoa (CCH25) closed down -458 (-3.65%) on Thursday, while March ICE London cocoa #7 (CAH25) ended down -261 (-2.63%). Cocoa prices experienced a significant drop after the dollar index (DXY00) surged to a 2-year high, prompting investors to liquidate long positions in cocoa futures.
This week saw cocoa prices rise sharply, with New York cocoa reaching an all-time peak and London cocoa hitting an 8-month high on Wednesday. The surge was largely influenced by a disappointing outlook for the West African mid-crop. Maxar Technologies issued warnings about dry conditions in the region affecting the early stages of the cocoa crop expected to be harvested in April. Additionally, the arrival of the Harmattan winds, known for bringing dry air and dust, could exacerbate these issues.
Global cocoa stock levels are also dropping, adding upward pressure on prices. The ICE-monitored cocoa inventories in U.S. ports have been steadily decreasing for the past 1.5 years, recently hitting a 20-year low of 1,386,781 bags.
Further compounding the price pressure, the International Cocoa Association (ICCO) adjusted its 2023/24 global cocoa deficit estimate from May’s -462,000 MT to -478,000 MT, marking the largest deficit in over 60 years. The ICCO also revised down its production estimate for the 2023/24 season to 4.380 MMT from 4.461 MMT, representing a -13.1% year-on-year decline. Its forecast for the global cocoa stocks/grindings ratio stands at 27.0%, a level not seen in 46 years.
Recent heavy rainfall in West Africa has led to reports of high mortality rates for cocoa buds, pushing prices even higher. In the Ivory Coast, flooding has raised disease risks and lowered crop quality. The latest batch of cocoa beans from the Ivory Coast has shown lower quality, with approximately 105 beans per 100 grams. For context, the Ivory Coast’s cocoa regulator permits exporters to purchase beans with counts ranging from 80 to over 100 per 100 grams, with fewer beans indicating higher quality.
Despite these challenges, an increase in cocoa shipments from the Ivory Coast, the world’s leading cocoa producer, serves as a bearish signal for prices. According to government data, cocoa shipments from October 1 to December 15 rose to 894,009 MT, up +33% from 671,544 MT during the same period last year.
Nigeria, the world’s sixth-largest cocoa producer, also reported a rise in cocoa exports, with October exports increasing +15% year-on-year to 20,508 MT. On a related note, the Ivory Coast’s regulatory body, Le Conseil Cafe-Cacao, announced on October 18 an increase in its production estimate for 2024/25 to a range of 2.1-2.2 MMT, up from a June estimate of 2.0 MMT.
In terms of global cocoa demand, recent reports presented a mixed picture. The National Confectioners Association reported a +12% increase in North America’s Q3 cocoa grindings year-on-year, reaching 109,264 MT. Conversely, the Cocoa Association of Asia noted a +2.6% rise in their Q3 grindings to 216,998 MT, while the European Cocoa Association recorded a -3.3% decline in Q3 grindings to 354,335 MT.
Support for cocoa prices was found after Ghana’s Cocoa Board (Cocobod) revised its 2024/25 production estimate down to 650,000 MT from a previously forecasted 700,000 MT. This was largely due to adverse weather and crop diseases contributing to a significant drop in Ghana’s 2023/24 cocoa harvest, which fell to a 23-year low of 425,000 MT. As the world’s second-largest cocoa producer, Ghana’s output significantly influences global markets.
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.
