Cocoa Prices in Freefall
This morning, we see a dramatic plunge in cocoa prices with both NY and London cocoa hitting 1-week lows. The parabolic surge in cocoa prices has driven them into overbought territory, triggering a wave of long liquidation pressure among investors today.
Sowing the Seeds of High Prices
Earlier this week, both NY and London cocoa touched historic highs as concerns over dwindling global cocoa supplies intensified. The cash market witnessed prices skyrocket as cocoa grinders globally hustled to secure limited supplies amidst fears of West African suppliers defaulting on contracts. Since the year’s onset, cocoa prices have more than doubled—an astonishing 143% surge—propelled by the most severe supply scarcity in four decades.
Weathering the Storm of Decreased Production
A slump in cocoa production in the Ivory Coast, the world’s leading producer, served as a core bullish driver for soaring cocoa prices. Recent government data from the Ivory Coast highlighted a stark 27.8% decline in cocoa shipments—a troubling sign that signals the potential for a more significant drop in production figures. Projections from Trader Ecom Agroindustrial paint a grim picture, forecasting an alarming 21.5% year-on-year plunge in the 2023/24 cocoa production to an eight-year nadir of 1.75 MMT.
Ghana’s Plight: A Story of Waning Harvests
The Ghana Cocoa Board’s somber revelation last Monday of an anticipated cocoa harvest—ranging between 422,500 MMT to 425,000 MT—half of the initial forecast and marking a 22-year low, due to devastating weather conditions and diseases ravaging the cocoa crop.
Tightening Supply Chains
The worrying projections for the West African mid-crop have sowed further concerns about cocoa supply tightness. Ghana has slashed its mid-crop projection from 150,000 MT to a mere 25,000 MT, while the Ivory Coast regulator anticipates a 33% plunge in the officially commencing mid-crop to 400,000 MT from last year’s 600,000 MT. Nigeria, another key player, has revised its mid-crop forecast downwards from 90,000 MT to 76,500 MT.
Bullish Signals Amongst Chaos
While the storm rages on, there are moments of optimism in the cocoa market. Inventories monitored by ICE in U.S. ports hit a three-year low of 4,054,349 bags on March 18, providing a glimmer of hope amidst the chaos.
The Bitter Reality of the Global Cocoa Market
With unfavorable growing conditions and crop diseases wreaking havoc on West African farms, cocoa production has significantly suffered, catapulting prices into a parabolic ascent. The forecasts for a global cocoa deficit loom large as the current production levels lag behind the insatiable demand. Additionally, the specter of El Nino weather events casts a shadow over the market, drawing parallels to the 2016 rally spurred by a similar weather occurrence.
Shifting Sands of Demand
Record-breaking cocoa prices are finally starting to crimp global demand. Recent data indicates a decline in North American, Asian, and European cocoa grindings in the last quarter of the year—signaling a potential shift in consumption patterns amidst the price surge.
Find more groundbreaking cocoa insights on Barchart.
Full disclosure: At the time of writing, Rich Asplund had no positions, either directly or indirectly, in any securities mentioned in this article. All information shared is purely for informational purposes. For a deeper dive, refer to the Barchart Disclosure Policy.
The opinions voiced herein belong solely to the author and do not necessarily align with Nasdaq, Inc.’s viewpoints.
