Cocoa Prices Surge Amid Concerns Over West African Production
On Tuesday, December ICE NY cocoa (CCZ24) closed higher at +170 (+2.02%), while December ICE London cocoa #7 (CAZ24) rose by +244 (+3.49%).
Weather Woes Drive Cocoa Prices Upward
Cocoa prices saw a significant increase on Tuesday, with London cocoa reaching its highest level in four months. Forecaster Maxar Technologies cited concerns over crop production in West Africa due to dry weather. This week’s dry conditions are expected to lead to “unfavorable soil moisture levels” that may harm the mid-year cocoa crop’s flowering.
Impact of Adverse Weather on West African Producers
Weather issues in West Africa are keeping cocoa prices elevated. In Ghana and Nigeria, heat and dryness could negatively affect the mid-crop, which officially begins in April. In addition, heavy rains in the Ivory Coast have flooded fields, increasing the risk of disease and affecting overall crop quality. Recently harvested beans from the Ivory Coast have shown lower quality, with approximately 105 beans per 100 grams, which is above the acceptable range set by the cocoa regulator, where high-quality cocoa usually has a lower bean count.
Global Cocoa Supply Shrinks, Raising Prices
Declining global cocoa stockpiles are also bullish for prices. Cocoa inventories monitored by the ICE at US ports have decreased for 17 consecutive months, hitting a 19-year low of 1,620,242 bags as of Tuesday.
Market Reactions to Supply Concerns
Cocoa prices fell sharply on Monday, with supply concerns easing following news from the Intercontinental Exchange. They announced a delay in planned changes to coffee and cocoa contracts until the end of 2025 due to uncertainty regarding European Union deforestation regulations. Last Friday, both NY cocoa and London cocoa reached two-month and four-month highs, respectively, due to worries about supply stemming from potential regulations aimed at curbing deforestation.
Ivory Coast Production Increases
On the flip side, increased cocoa supplies from the Ivory Coast, the world’s largest producer, serve as a bearish factor. Data released on Monday showed that from October 1 to November 17, farmers shipped 548,494 MT of cocoa, a 32% increase from 415,523 MT during the same period last year. Additionally, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to 2.1-2.2 MMT, up from a previous estimate of 2.0 MMT.
Mixed Demand Signals from Across the Globe
Recent reports on global cocoa demand have been mixed. The National Confectioners Association noted a 12% year-over-year increase in North American Q3 cocoa grindings, totaling 109,264 MT. Meanwhile, the Cocoa Association of Asia reported a 2.6% rise in Q3 Asian cocoa grindings to 216,998 MT. In contrast, the European Cocoa Association indicated a decline of 3.3% year-over-year, with Q3 grindings falling to 354,335 MT.
Ghana’s Production Issues
Support for cocoa prices was also bolstered on August 20 when Ghana’s Cocoa Board trimmed its 2024/25 production estimate to 650,000 MT from 700,000 MT. Ghana’s 2023/24 cocoa harvest is expected to drop to a 23-year low of 425,000 MT due to poor weather and crop diseases—impacting this significant cocoa-producing country.
Cameroon’s Production Increase
On another note, Cameroon, the fifth-largest cocoa producer, reported a +1.2% year-over-year increase in cocoa production for the 2023/24 season, totaling 266,725 MT. Additionally, Nigeria’s cocoa exports increased by +6.8% year-over-year, reaching 14,984 MT.
Global Cocoa Deficit Grows
In a notable bullish indicator, the International Cocoa Association (ICCO) raised its estimate for the global cocoa deficit to -462,000 MT from -439,000 MT, marking the largest deficit in over six decades. The ICCO also revised its 2023/24 production estimate downward to 4.330 MMT from 4.461 MMT, predicting the lowest stocks-to-grindings ratio in 46 years at 27.4%.
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.
