Parabolic Rise: Cocoa Futures Hit Record Highs
Recent data shows a remarkable surge in cocoa futures, with May ICE NY cocoa (CCK24) rising by +126 (+1.57%), and May ICE London cocoa #7 (CAK24) up by +233 (+3.56%). This uptrend follows a two-month-long rally, fueled by growing worries about dwindling cocoa supplies, especially from West Africa.
Bearish Tendencies: Decline in Cocoa Production
The world’s largest cocoa producer, the Ivory Coast, has experienced a significant drop in cocoa production. Recent statistics indicate a 28% decline in cocoa shipments to ports since last year. The Ivory Coast is anticipating a 33% decrease in its mid-crop harvest, with projections pointing to a 21.5% drop in the country’s 2023/24 cocoa production.
Adding to the bearish sentiment, cocoa stockpiles monitored by ICE in U.S. ports hit a three-year low recently.
Global Deficit: ICCO’s Projections and Market Impact
The International Cocoa Organization (ICCO) forecasts a widening global cocoa deficit for 2023/24, reaching -374,000 MT compared to the previous year’s -74,000 MT. With an anticipated 11% decrease in global cocoa production and a nearly 5% fall in cocoa grindings, the stock-to-grindings ratio for 2023/24 is expected to hit a 40-year low.
The ongoing cocoa crisis, marked by adverse weather conditions and crop diseases in West Africa, has triggered a surge in cocoa prices. The market braces for a persistent deficit in 2023/24 due to insufficient cocoa production to meet global demand.
Market Dynamics: Impact of Smaller Exports and Climate Events
Nigeria, the fifth largest cocoa producer globally, witnessed a 15% decline in cocoa exports in January, further tightening supply dynamics. The current El Nino weather pattern is lending support to cocoa prices, reminiscent of the rally seen in 2016 following a similar climatic event.
Concerns around global cocoa supplies have intensified, with the Ivory Coast cocoa regulator suspending forward cocoa sales for the 2024/25 season. This move adds to supply disruptions, heightening market uncertainties.
Demand Dampening: Record Prices Influence Consumption
The surge in cocoa prices is starting to impact global demand, as evidenced by declines in quarterly cocoa grindings across North America, Asia, and Europe. Reports from various industry associations reveal notable drops in cocoa processing, indicating a potential shift in consumption patterns due to elevated prices.
More Cocoa News from Barchart
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.
