Cocoa Prices Fall Amid West African Weather Changes
Recent Rains and Export Trends Impact Market
March ICE NY cocoa (CCH25) closed down -538 (-4.58%) on Thursday, while March ICE London cocoa #7 (CAH25) dropped -367 (-3.99%).
On Thursday, cocoa prices hit a low not seen in a week and a half. The decline followed recent rains in West Africa that improved soil moisture and reduced dry conditions, prompting long liquidation in cocoa futures.
Interestingly, NY cocoa reached a three-week high on Wednesday, and London cocoa rose to a five-week peak. This was primarily driven by concerns over crop production in West Africa. Forecaster Maxar Technologies reported that this year, the seasonal Harmattan winds have been the driest in six years, leading to worsening crop conditions. Farmers in Ivory Coast and Ghana have observed cocoa trees exhibiting signs of distress, such as fading leaves and wilting cocoa pods.
Another aspect influencing cocoa prices is the slowing cocoa exports from Ivory Coast, which could tighten global supplies. Government data released on Monday showed that Ivory Coast farmers have shipped 1.24 million metric tons (MMT) of cocoa to ports so far this marketing year. This represents an increase of over 24% compared to last year, but the growth rate has slowed from the 35% rise noted the previous month.
The prospect of a widening global cocoa deficit adds bullish pressure on prices. The International Cocoa Organization (ICCO) announced on Friday that a recent survey indicated global cocoa stockpiles at the conclusion of the 2023/24 season would be 1.041 MMT, a decrease of 36% year-on-year (y/y) and below a prior estimate of 1.300 MMT. This signals that the projected global cocoa deficit of 478,000 MT may be more significant than initially thought.
Moreover, tight global cocoa inventories support rising prices. Cocoa stocks monitored by ICE at U.S. ports have been declining for the past year and a half, dropping to a 21-year low of 1,263,493 bags last Friday.
Chocolate giant Hershey Co. has also contributed to market dynamics. Recently, it sought approval from the CFTC to purchase a significant amount of cocoa through the ICE Futures Exchange due to constrained global supplies. According to Bloomberg, Hershey’s plan involves acquiring more than 90,000 MT of cocoa, which is more than nine times the current limit set by the exchange and surpasses the federal position limit of 4,900 contracts (or 49,000 MT). This highlights how substantial global cocoa shortages have made delivery through the New York exchange more economical than purchasing beans in the physical market.
Back in December, NY Cocoa hit an all-time high for nearest futures, while London Cocoa reached a nine-month peak due to the declining outlook for the West African mid-crop. Maxar Technologies cautioned that dry conditions could further hinder the early development of the mid-year cocoa crop set for harvest in April, with the arrival of more Harmattan winds likely exacerbating the situation.
Another positive for cocoa prices emerged from the ICCO on November 22, which raised its global cocoa deficit projection to 478,000 MT—the largest in over 60 years—while also reducing the expected production for the same season to 4.380 MMT, a decline of 13.1% y/y. The ICCO’s forecast places the global cocoa stocks-to-grindings ratio at 27.0%, marking a 46-year low.
However, the potential for high cocoa prices to decrease demand remains a concern. The European Cocoa Association reported a 5.3% drop in Q4 European cocoa grindings year-on-year, reaching 331,853 MT—the lowest figure in over four years. Similarly, the Cocoa Association of Asia noted a small decrease of 0.5% in grindings, marking yet another four-year low with 210,111 MT. In North America, the National Confectioners Association also reported a 1.2% decline in Q4 cocoa bean grindings to 102,761 MT.
Lastly, stronger cocoa exports from Nigeria, the world’s sixth-largest producer, add bearish sentiment to the market. Nigeria’s cocoa exports for December surged 87% year-on-year to 46,696 MT.
In contrast, the Ivory Coast regulator Le Conseil Cafe-Cacao increased its production forecast for Ivory Coast’s 2024/25 season to between 2.1 and 2.2 MMT, up from the previous estimate of 2.0 MMT made in June.
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 presented in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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