Cocoa Prices Surge Amid Global Supply Concerns
Weather Woes and Stockpile Shortages Propel Market Activity
March ICE NY cocoa (CCH25) closed unchanged on Friday, while March ICE London cocoa #7 (CAH25) rose by +36 (+0.46).
This week, cocoa prices continued to climb, hitting new contract highs for both Mar NY cocoa and Mar London cocoa. In addition, nearest-futures (Z24) NY cocoa reached a 2-3/4 month high, and nearest-futures (Z24) London cocoa hit a 5-1/2 month high. The surge in prices follows a report from Maxar Technologies on Wednesday indicating that dry conditions in West Africa may negatively impact the early stages of the mid-year cocoa crop, which is set to be harvested in April. Additionally, the impending arrival of the seasonal Harmattan winds could further exacerbate these challenges.
Despite the optimism, a stronger dollar (DXY00) on Friday prompted some profit-taking in cocoa futures, causing prices to retreat from their peak, with NY cocoa ultimately closing unchanged.
Reduced global cocoa stockpiles remain a key driver of the bullish market. ICE-monitored cocoa inventories in U.S. ports have steadily declined over the past year and a half, reaching a 20-year low of 1,496,277 bags as of Friday.
Another factor pushing prices higher is the International Cocoa Association (ICCO)’s adjustment to its 2023/24 global cocoa deficit estimate, which was raised to -478,000 MT from -462,000 MT in May. This marks the greatest deficit in over 60 years. ICCO also revised its 2023/24 cocoa production estimate down to 4.380 MMT from 4.461 MMT, reflecting a year-over-year drop of -13.1%. The projected global cocoa stocks/grinding ratio is now at 27.0%, the lowest in 46 years.
In West Africa, heavy rains have contributed to high mortality rates among cocoa buds and significantly impacted crop quality. Reports from the Ivory Coast indicate that excessive flooding has heightened risks of disease and adversely affected the quality of cocoa beans, which have displayed a count of about 105 beans per 100 grams. The Ivory Coast cocoa regulator permits bean counts of 80 to 100 or slightly more per 100 grams, with a lower count signifying better quality.
Conversely, increased cocoa supplies from the Ivory Coast, the world’s leading producer, may present downward pressure on prices. Recent government data revealed that farmers shipped 734,026 MT of cocoa to ports between October 1 and December 1, marking a +34.6% increase compared to 545,164 MT during the same period last year.
Meanwhile, cocoa exports from Nigeria, the sixth-largest producer, have also surged, with October exports rising by +15% year-over-year to 20,508 MT.
On a less favorable note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, recently raised its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT from a prior forecast of 2.0 MMT in June.
Global cocoa demand has shown mixed signals recently. The National Confectioners Association reported on October 17 that North American Q3 cocoa grindings rose by +12% year-over-year to 109,264 MT. Meanwhile, the Cocoa Association of Asia noted a +2.6% rise in Q3 Asian cocoa grindings to 216,998 MT. In contrast, the European Cocoa Association reported a -3.3% decline in European Q3 cocoa grindings, totaling 354,335 MT.
Support for cocoa prices was reinforced when Ghana’s Cocoa Board (Cocobod) announced on August 20 a reduction in its 2024/25 Ghana cocoa production estimate to 650,000 MT, down from a prior estimate of 700,000 MT. Bad weather and crop diseases have caused Ghana’s 2023/24 cocoa harvest to plummet to a 23-year low of 425,000 MT. Notably, Ghana is the world’s second-largest cocoa producer, with its 2024/25 cocoa harvest scheduled to begin in October.
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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
