Cocoa Futures Hit Record Highs Amid Fears of Supply Shortage
May ICE NY cocoa (CCK24) on Monday closed up +154 (+1.92%), and May ICE London cocoa #7 (CAK24) closed up +262 (+4.00%). The relentless surge in cocoa prices continued, with both NY and London cocoa futures contracts marking new record highs, driven by ongoing apprehensions over limited cocoa supplies from West Africa.
Tight Supplies from Ivory Coast Fuel Price Surge
A significant drop in cocoa production in the Ivory Coast, the world’s leading cocoa producer, has been a major catalyst for the bullish trend in cocoa prices. Recently released government data indicated a substantial decline in cocoa shipments to ports, with the Ivory Coast mid-crop expected to plummet by 33%. Adding to the frenzy, Trader Ecom Agroindustrial forecasts an alarming 21.5% year-on-year decline in cocoa production in Ivory Coast for 2023/24, hitting an eight-year low.
Global Cocoa Deficit Widens, Adding to Price Pressures
The International Cocoa Organization (ICCO) raised concerns when it projected a widening global cocoa deficit for 2023/24, hinting at a shortfall of 374,000 MT compared to the previous year. The decrease in global production by 11% year-on-year may exacerbate the deficit, with cocoa grindings anticipated to plummet by nearly 5%, pushing the stock-to-grindings ratio to its lowest point in over four decades.
External Factors amplifying Cocoa Crisis
Adverse weather conditions and crop diseases in West Africa have further dampened cocoa production, intensifying the phenomenal surge in cocoa prices. The looming global cocoa deficit is poised to persist into 2023/24 due to insufficient current production levels. Additionally, the current El Nino weather event is adding support to cocoa prices, reminiscent of the 2016 drought-induced rally that saw cocoa prices soar to twelve-year highs.
Nigeria’s Declining Exports Exacerbate Price Pressures
Smaller cocoa exports from Nigeria, the fifth-largest cocoa producer globally, are exacerbating supply concerns amidst the price rally. Nigeria recorded a 15% year-on-year decline in cocoa exports in January, adding to the global supply woes.
Market Reactions and Demand Constraints
Record-high cocoa prices are beginning to have an impact on global demand, with reports indicating declines in cocoa grindings across North America, Asia, and Europe in the last quarter of the year. The onset of dwindling grindings in major markets signifies the beginning of a shift in demand dynamics.
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.
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