Gains and Losses: Cocoa Prices Dip Amid Mixed Supply and Demand Signals
March ICE NY cocoa (CCH25) fell by -167 (-1.47%) on Tuesday, while March ICE London cocoa #7 (CAH25) decreased by -21 (-0.23%).
Market Trends Driven by Currency Fluctuations
Cocoa prices faced moderate declines on Tuesday, largely influenced by a stronger dollar (DXY00), which triggered long liquidation in cocoa futures. Earlier in the week, prices had risen to one-week highs due to worries that slowing cocoa exports from the Ivory Coast could tighten global supplies. According to government data, farmers in Ivory Coast have shipped 1.11 MMT of cocoa to ports so far this marketing year, showing a more than +27% increase compared to last year. However, this growth rate has slowed from the 35% rise reported last month.
Decreasing Stockpiles Offer Price Support
Stockpiles of cocoa are dwindling, providing a bullish outlook for prices. According to ICE, cocoa inventories monitored in U.S. ports have been on a downward trend for the past 1.5 years, dropping to a 20-year low of 1,345,300 bags on Tuesday. Concerns over crop production in West Africa are also contributing to the upward pressure on cocoa prices, as some farmers in Ivory Coast and Nigeria reported damage to their cocoa trees due to the seasonal Harmattan winds, which are making leaves yellow and causing cocoa pods to wither.
Recent Historical Context and Forecasts
On December 18, NY Cocoa reached an all-time high for nearest futures, while London Cocoa hit its highest point in 8.5 months due to negative forecasts for the West African cocoa mid-crop. Maxar Technologies cautioned that dry weather conditions in West Africa could hinder the early development of the mid-year cocoa crop, which is harvested in April. Additionally, Ghana reduced its 2024/25 cocoa harvest forecast by -5% on December 20, marking the season’s second downward adjustment.
Global Cocoa Deficit Expands
The International Cocoa Association (ICCO) increased its estimate for the 2023/24 global cocoa deficit to -478,000 MT, up from the earlier estimate of -462,000 MT, marking the largest shortfall in over 60 years. ICCO also lowered its 2023/24 cocoa production estimate to 4.380 MMT, down -13.1% year-on-year. Furthermore, the projected global cocoa stocks-to-grindings ratio stands at 27.0%, a record low in 46 years.
Weather’s Impact on Cocoa Quality
Recent heavy rainfall in West Africa has raised concerns, leading to reports of high mortality rates among cocoa buds. This extreme weather has affected crop quality, especially in the Ivory Coast, where flooding has increased disease risks. Quality assessments show that recently harvested beans contain about 105 beans per 100 grams; the Ivory Coast cocoa regulator allows exporters to purchase beans with counts ranging from 80 to 100 for every 100 grams, with lower counts indicating better quality.
Mixed Export Data Presents Challenges
Despite the bearish trends, recent government data pointed to continued robust shipments from Ivory Coast, the world’s leading cocoa producer, which exported 1.11 MMT of cocoa to ports from October 1 to January 5, marking a +27.5% increase from 870,510 MT during the same period last year. Furthermore, Nigerian cocoa exports surged by +35% year-on-year to 38,015 MT.
European Concerns and Regional Production Estimates
On a less favorable note, the Ivory Coast’s production forecast for 2024/25 was revised upwards to a range of 2.1-2.2 MMT from a prior estimate of 2.0 MMT. Mixed signals continued across global cocoa demand as various reports revealed differing results: the National Confectioners Association reported a +12% year-on-year increase in North America’s Q3 cocoa grindings to 109,264 MT, while the Cocoa Association of Asia noted a +2.6% rise to 216,998 MT. In contrast, European grindings fell by -3.3% to 354,335 MT.
Ghana’s Challenges Further Complicate the Picture
The market also found support following Ghana’s Cocoa Board (Cocobod) reducing its 2024/25 cocoa production forecast to 650,000 MT from a previous estimate of 700,000 MT. Adverse weather conditions and crop diseases have impacted 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 struggles are significant in shaping market dynamics.
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 for informational purposes only. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
