Cocoa Prices Soar Amid Supply Concerns and Grinding Data
March ICE NY cocoa (CCH25) closed Friday up +671 (+6.39%). Similarly, March ICE London cocoa #7 (CAH25) concluded the day up +426 (+4.99%).
Surge in Cocoa Prices Alleviates Demand Worries
On Friday, cocoa prices experienced a notable increase following the release of grinding data. North American Q4 cocoa grindings decreased by only -1.2% year-on-year, totaling 102,761 MT. This was less of a drop compared to steeper declines in Europe and Asia, tempering fears of reduced demand amid rising prices.
Depleted Stockpiles Add Pressure
A decrease in global cocoa reserves is also driving prices higher. Over the past 1.5 years, ICE-monitored cocoa stocks in U.S. ports have been in decline, reaching a 21-year low of 1,292,153 bags as of Thursday.
Past Week’s Price Fluctuations
Earlier in the week, cocoa prices dropped to one-week lows as concerns over high prices leading to demand destruction surfaced. Reports indicated that Q4 European cocoa grindings fell -5.3% year-on-year to 331,853 MT, reaching the lowest level in more than four years. Similarly, Q4 Asian cocoa grindings dipped -0.5% year-on-year to 210,111 MT, also marking a four-year low.
Concerns Over Ivory Coast Exports
Fresh worries about declining cocoa export rates from the Ivory Coast are adding to the price support. Although government data on Monday revealed that Ivory Coast farmers shipped 1.16 MMT of cocoa to ports this marketing year, showing a +27% increase from last year, the pace of growth has slowed from a 35% increase noted the previous month.
Hershey’s Major Cocoa Purchase Plan
Support for cocoa prices was bolstered last week when Hershey Co. announced its intent to seek CFTC approval for a substantial cocoa purchase through the ICE Futures Exchange amidst tight global supplies. Bloomberg reported that Hershey aims to acquire over 90,000 MT of cocoa, which far exceeds the exchange’s current limits. This has made taking delivery of supplies through the New York exchange a cheaper option than buying in the physical market.
Weather Woes Impacting Crop Production
Farmers in Ivory Coast and Ghana have raised concerns about crop output due to the seasonal Harmattan winds affecting cocoa trees. Reports indicate that leaves are turning yellow and cocoa pods are wilting due to these conditions.
Historic Supply Deficits Raise Alarm
On December 18, NY Cocoa reached an all-time high, while London Cocoa hit an 8.5-month peak due to worries over the West African cocoa crop outlook. Maxar Technologies forecasts that dry conditions will adversely affect the cocoa crop expected to be harvested in April.
Global Cocoa Deficit Escalates
The International Cocoa Association (ICCO) has revised its global cocoa deficit estimate for 2023/24 to -478,000 MT, a significant increase from May’s estimate. The ICCO has also lowered its cocoa production forecast to 4.380 MMT, a drop of -13.1% year-on-year.
Mixed Export Signals from Nigeria
While Nigeria, the world’s sixth-largest cocoa producer, saw a +35% year-on-year increase in cocoa exports to 38,015 MT last November, this poses a bearish element for prices as global competition grows.
Future Prospects for Ivory Coast Production
On a less favorable note, the Ivory Coast regulator has raised its production estimate for 2024/25 to between 2.1-2.2 MMT, up from an earlier forecast of 2.0 MMT.
Challenges for Ghana’s Cocoa Output
Ghana’s Cocoa Board adjusted its 2024/25 cocoa production estimate down to 650,000 MT after bad weather and crop diseases significantly impacted the 2023/24 harvest, which fell to a 23-year low of 425,000 MT. Ghana remains the second-largest cocoa producer globally.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
