Cocoa Prices Surge to New Heights Amid Supply Concerns
Cocoa Market Trends:
March ICE NY cocoa (CCH25) has risen by +181 (+1.84%), while March ICE London cocoa #7 (CAH25) is up by +171 (+2.17%).
Arguably, cocoa prices are experiencing a strong six-week rally, with both March NY cocoa and March London cocoa achieving new contract highs. Additionally, the most recent futures (Z24) for London cocoa have reached a 5-1/2 month peak. Analysts attribute the price surge to worsening conditions for the West African cocoa mid-crop. Maxar Technologies has indicated that dry weather will significantly impact the early growth of the mid-year cocoa crop, which is set to be harvested in April. The onset of the seasonal Harmattan winds may exacerbate these issues.
Declining Cocoa Supplies:
The drop in global cocoa stocks also fuels rising prices. Cocoa inventories monitored by ICE at US ports have trended down for the past 1-1/2 years, recently hitting a 20-year low of 1,496,277 bags.
Moreover, on November 22, the International Cocoa Association (ICCO) revised its global cocoa deficit estimate for 2023/24 to -478,000 MT, up from May’s -462,000 MT, marking the largest deficit in over 60 years. The ICCO has also adjusted its cocoa production forecast for 2023/24 to 4.380 MMT, decreasing it from May’s 4.461 MMT—a decline of 13.1% from the previous year. The ICCO projects the global cocoa stocks/grindings ratio to be 27.0%, the lowest in 46 years.
Weather Impacts on Quality:
Excessive rainfall in West Africa has increased mortality rates of cocoa buds, further driving prices upward. The heavy rains in the Ivory Coast have led to severe field flooding, heightened disease risks, and negatively affected crop quality. Recent harvests from the Ivory Coast have shown reduced quality, with the bean counts averaging about 105 beans per 100 grams. The local cocoa regulator permits exporters to buy beans with counts from 80 to 100 or slightly more for every 100 grams, with lower counts indicating better quality.
Production Increases Signal Potential Price Drop:
On the other hand, rising cocoa supplies from the Ivory Coast, the leading producer globally, might keep prices in check. Recent government statistics reveal that farmers shipped 819,425 MT of cocoa from October 1 to December 8, marking a 34.5% increase from the 609,446 MT shipped during the same period last year.
Similarly, stronger cocoa exports from Nigeria, the sixth-largest producer, also contribute to a bearish outlook. Nigeria’s cocoa exports rose by 15% year-over-year in October, totaling 20,508 MT.
Future Projections:
Notably, on October 18, the Ivory Coast regulator, Le Conseil Cafe-Cacao, increased its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT from a prior June estimate of 2.0 MMT.
In terms of global cocoa demand, recent data appears mixed. The National Confectioners Association noted a 12% year-on-year increase in North American cocoa grindings for Q3, reaching 109,264 MT. Meanwhile, the Cocoa Association of Asia indicated a 2.6% rise in Q3 cocoa grinding, reaching 216,998 MT. Conversely, the European Cocoa Association reported a 3.3% decline in European Q3 cocoa grindings, dropping to 354,335 MT.
Cocoa market support was found after Ghana’s Cocoa Board (Cocobod) reduced its 2024/25 cocoa production estimate to 650,000 MT from the June forecast of 700,000 MT. Bad weather and crop disease led Ghana’s 2023/24 cocoa harvest to its lowest in 23 years, registering at 425,000 MT. As the second-largest cocoa producer in the world, the status of Ghana’s crop remains critical, with its harvest season beginning 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 here.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
