Cocoa Prices Surge Amid Supply Concerns and Crop Challenges
ICE NY cocoa prices closed on Monday with notable gains, as global supply issues mount. March ICE NY cocoa (CCH25) rose by +358 (+3.39%), while March ICE London cocoa #7 (CAH25) increased by +267 (+3.11%).
Exports from Ivory Coast Slow, Tightening Global Supplies
Cocoa prices jumped sharply on Monday due to worries about declining cocoa exports from Ivory Coast. Although farmers shipped 1.16 million metric tons (MMT) of cocoa this marketing year, a rise of over +27% from the previous year, the growth rate has eased from a 35% increase recorded last month. Meanwhile, Monday’s strength in the dollar index (DXY00) hit a two-year high, which limited further gains in cocoa prices.
Global Cocoa Stockpiles at Record Lows
Decreasing global cocoa inventories are supporting higher prices. The amount of cocoa stored at U.S. ports, monitored by ICE, has declined consistently for the past 1.5 years, reaching a 20-year low of 1,305,196 bags on Monday. Additionally, Hershey Co. recently applied for CFTC approval to purchase a significant amount of cocoa through the ICE Futures Exchange, highlighting the tight global supply. Bloomberg states that Hershey aims to acquire over 90,000 MT of cocoa, which exceeds the current exchange limits by more than nine times and surpasses the federal position cap of 4,900 contracts (or 49,000 MT) established by the CFTC. Due to severe global cocoa shortages, it is currently more affordable to order supplies through the New York exchange than to buy in the physical market.
Weather Issues Affect Crop Production
Production challenges in West Africa also bolster cocoa prices. Cocoa farmers from Ivory Coast and Nigeria reported that their trees are suffering from the dry and dusty Harmattan winds, resulting in yellowing leaves and withering cocoa pods. On December 18, NY Cocoa reached an all-time high for nearest futures, while London Cocoa achieved an 8.5-month high due to concerns surrounding the West African cocoa mid-crop outlook. Maxar Technologies warned that the dry conditions could negatively impact the early development of the mid-year cocoa crop set for April harvesting.
Global Cocoa Deficit Widens
In a significant development, the International Cocoa Association (ICCO) raised its estimate for the 2023/24 global cocoa deficit to -478,000 MT, up from May’s estimate of -462,000 MT. This represents the largest deficit recorded in more than 60 years. ICCO also revised its cocoa production forecast down to 4.380 MMT, a decrease of -13.1% year-on-year. This new estimate suggests a global stocks to grindings ratio of 27.0%, the lowest in 46 years.
Weather Impacts on Quality and Exports
Heavy rainfall in West Africa has resulted in high mortality rates of cocoa buds, pushing prices significantly higher. Flooding in Ivory Coast has increased disease risk and adversely affected crop quality, with recently harvested cocoa beans reflecting lower quality standards. Current counts are around 105 beans per 100 grams, while the Ivory Coast regulator allows exporters to purchase beans with counts between 80 and 100 for optimum quality.
Nigeria’s Cocoa Exports Rise
On a bearish note, Nigeria, the world’s sixth-largest cocoa producer, reported a +35% year-on-year increase in November cocoa exports, totaling 38,015 MT. Meanwhile, the Ivory Coast regulator, Le Conseil Cafe-Cacao, raised the cocoa production estimate for the 2024/25 season to a range of 2.1-2.2 MMT, up from a previous forecast of 2.0 MMT made in June.
Mixed Global Cocoa Demand Signals
Recent data on global cocoa demand presents a mixed picture. According to the National Confectioners Association, North American cocoa grindings in Q3 rose by +12% year-on-year to 109,264 MT. In Asia, the Cocoa Association reported an increase of +2.6% year-on-year in Q3, reaching 216,998 MT. Conversely, the European Cocoa Association noted a -3.3% decline in Q3 cocoa grindings to 354,335 MT.
Ghana Faces Production Challenges
Cocoa prices also received support after Ghana’s Cocoa Board (Cocobod) cut its Ghana cocoa production estimate for 2024/25 to 650,000 MT from 700,000 MT, previously expected in June. Due to adverse weather and crop diseases, Ghana’s cocoa harvest for 2023/24 dropped to a 23-year low of 425,000 MT, underscoring its status as the world’s second-largest cocoa producer.
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.
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