Cocoa Prices Surge Amidst Global Supply Concerns

March ICE NY cocoa (CCH25) is up +80 (+0.69%), while March ICE London cocoa #7 (CAH25) rises +29 (+0.32%).

Global Cocoa Stockpiles Decline Significantly

Cocoa prices are on the rise today after the International Cocoa Organization (ICCO) reported a significant drop in global cocoa stockpiles. Surveys show that at the end of the 2023/24 season, stockpiles are at 1.041 MMT, down -36% year-over-year and below a previous estimate of 1.3 MMT. This decline indicates that the ICO’s estimate for a global cocoa deficit of -478,000 MT may be larger than initially anticipated.

Impact of a Stronger British Pound

Gains in London cocoa are somewhat restrained today due to a stronger British pound, which has reached a 2-1/2 week high against the dollar. This strength dampens demand for cocoa priced in sterling.

Crop Production Concerns in West Africa

Recently, NY cocoa reached a two-week high, while London cocoa achieved a one-month high, driven by worries about crop production in West Africa. According to forecaster Maxar Technologies, this year’s Harmattan winds are the driest in six years, negatively impacting crop conditions. Farmers in Ivory Coast and Ghana are observing detrimental effects on cocoa trees, with yellowing leaves and wilting cocoa pods.

Declining Cocoa Inventories in the U.S.

Support for cocoa prices continues as global inventories decline. Recently, ICE-monitored cocoa stocks in U.S. ports fell to a 21-year low of 1,270,317 bags, a trend that has persisted for the past 1-1/2 years.

Concerns Over Ivory Coast Exports

There are rising concerns that slowing cocoa exports from Ivory Coast could tighten global supplies. Although government data indicates shipments increased by over +26% this marketing year to 1.20 MMT, this growth is less than the 35% rise noted last month.

Hershey Co.’s Large Cocoa Purchase Request

Adding to the support for cocoa prices, Hershey Co. has sought approval from the CFTC to purchase a substantial amount of cocoa via the ICE Futures Exchange due to the tightening supply. Bloomberg reports that Hershey aims to acquire over 90,000 MT of cocoa, a volume exceeding both current exchange limits and CFTC federal guidelines.

Recent Historical Context

On December 18, NY cocoa reached an all-time nearest-futures high, while London cocoa hit an 8-1/2 month high, largely attributed to deteriorating outlooks for the West African cocoa mid-crop. Maxar Technologies had previously warned that dry conditions could hamper the early growth of this year’s mid-year crop.

Deficit Estimates Rise

The ICCO recently raised its 2023/24 global cocoa deficit estimate to -478,000 MT, the largest in over 60 years. Additionally, projections for cocoa production have been reduced from 4.461 MMT to 4.380 MMT, a decrease of -13.1% year-over-year. The ICCO also noted a dramatic decline in the global cocoa stocks/grindings ratio, estimated at 27.0%, marking a 46-year low.

Diminishing Demand and Global Exports

Last Thursday, cocoa prices dipped to two-week lows amid fears that high prices may be eroding demand. Reports showed that Q4 European cocoa grindings fell -5.3% year-over-year to 331,853 MT, the lowest in over four years. Q4 Asian cocoa grindings also decreased by -0.5% year-over-year to 210,111 MT, while North American grindings dropped by -1.2% to 102,761 MT.

Nigeria’s Cocoa Exports Present a Contradiction

Despite the overall bearish sentiment, Nigeria, the world’s sixth-largest cocoa producer, reported increased cocoa exports, which soared +35% year-over-year to 38,015 MT in November.

Ivorian Production Estimates Rise

On a less positive note, the Ivory Coast regulator Le Conseil Cafe-Cacao reported an increased estimate for the 2024/25 cocoa production ranging from 2.1 to 2.2 MMT, up from a previous forecast of 2.0 MMT.

Ghana’s Harvest Outlook Diminishes

In contrast, Ghana’s Cocoa Board (Cocobod) revised its 2024/25 production estimate downward to 650,000 MT, citing bad weather and crop diseases. The country’s 2023/24 cocoa harvest has fallen to a 23-year low of 425,000 MT, significantly impacting global cocoa markets.

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.