Cocoa Prices Surge as Supply Concerns Escalate
Price Increases Driven by Deteriorating West African Crop Conditions
March ICE NY cocoa (CCH25) closed up +228 (+2.31%) on Monday, while March ICE London cocoa #7 (CAH25) rose by +206 (+2.61%).
Cocoa prices continued their upward trend on Monday, marking six weeks of gains. March contracts for both NY and London cocoa reached new high levels. Additionally, the nearest-futures NY cocoa (Z24) hit a three-month peak, and the London cocoa (Z24) reached a five-and-a-half-month high. The surge in prices comes as the outlook for the West African mid-crop worsens. Maxar Technologies has indicated that dry spells in West Africa may compromise the early development of the mid-year cocoa crop, which is typically harvested in April, and that the seasonal Harmattan winds could exacerbate these conditions.
Decreasing Cocoa Stockpiles Support Higher Prices
The ongoing decline in global cocoa inventories also fuels higher prices. Cocoa stocks monitored by ICE at U.S. ports have consistently declined over the last year and a half, dropping to a 20-year low of 1,487,243 bags as of Monday.
Further supporting the price increase, the International Cocoa Association (ICCO) updated its global cocoa deficit estimate on November 22 to -478,000 MT for the 2023/24 season, up from May’s estimate of -462,000 MT. This marks the largest deficit in over 60 years. The ICCO also revised its cocoa production estimate down to 4.380 MMT from 4.461 MMT in May, reflecting a 13.1% year-over-year decline. Moreover, the ICCO forecasts a global cocoa stocks/grindings ratio of 27.0%, marking a 46-year low.
Weather Challenges in West Africa Impact Crop Quality
Heavy rainfall in West Africa has raised concerns, with reports indicating increased mortality rates of cocoa buds on trees, leading to a sharp rise in cocoa prices. The flooding in the Ivory Coast has further complicated matters by risking crop quality and increasing disease prevalence. Newly harvested beans from the Ivory Coast indicate lower quality, with approximately 105 beans counted per 100 grams. To put this into perspective, the Ivory Coast’s cocoa regulator permits exporters to purchase bean counts of 80 to 100 or slightly above per 100 grams, where the higher quality cocoa usually has a lower bean count.
Increased Supply from Ivory Coast and Nigeria Could Pressure Prices
A recent uptick in cocoa supplies from the Ivory Coast, the world’s leading producer, may put downward pressure on prices. Latest government data revealed that Ivory Coast farmers exported 819,425 MT of cocoa to ports between October 1 and December 8, showing a 34.5% increase from the 609,446 MT shipped during the same period last year.
Additionally, Nigeria, the sixth-largest cocoa producer, also showed a 15% year-over-year increase in cocoa exports, rising to 20,508 MT for October.
Production Estimates Remain a Mixed Bag
On the downside, the Ivory Coast regulator, Le Conseil Cafe-Cacao, increased its cocoa production estimate for 2024/25 to a range of 2.1-2.2 MMT, up from a previous forecast of 2.0 MMT issued in June.
In terms of global demand, the latest reports present a mixed picture. On October 17, the National Confectioners Association revealed that North American cocoa grindings rose 12% year-over-year to 109,264 MT. Meanwhile, the Cocoa Association of Asia reported a 2.6% year-over-year increase in Q3 cocoa grinding to 216,998 MT, whereas European cocoa grindings fell by 3.3% year-over-year to 354,335 MT.
Cocoa prices have received support following Ghana’s Cocoa Board (Cocobod) cutting its 2024/25 cocoa production estimate to 650,000 MT from a previous forecast of 700,000 MT. Adverse weather and crop diseases led Ghana’s 2023/24 cocoa harvest to plummet to a 23-year low of just 425,000 MT. As the second-largest cocoa producer in the world, Ghana’s forthcoming 2024/25 harvest begins 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 for informational purposes only. 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.
