Cocoa Prices Hit One-Week Low Amid Rising Concerns Over Supply and Demand
Eleventh-Hour Drop in Cocoa Prices Linked to Declining Grindings
March ICE NY cocoa (CCH25) closed down -319 (-2.95%) on Thursday, while March ICE London cocoa #7 (CAH25) dropped -217 (-2.48%).
On Thursday, cocoa prices slid to their lowest level in a week, primarily due to signs that increased prices are dampening demand. The European Cocoa Association revealed that Q4 European cocoa grindings decreased by -5.3% year-over-year to 331,853 MT, which marks the lowest volume in over four years. Similarly, the Cocoa Association of Asia reported a slight decline in Q4 Asian cocoa grindings, falling -0.5% year-over-year to 210,111 MT, also the lowest in four years.
Global Cocoa Stocks Dwindle, Worries Over Ivory Coast Exports
Decreasing global cocoa stockpiles are providing some price support. ICE-monitored cocoa inventories at US ports have decreased steadily over the last 18 months, reaching a 20-year low of 1,300,731 bags this past Tuesday.
Concerns regarding decreasing cocoa exports from the Ivory Coast are further tightening global supplies. Although government data from Monday indicated that Ivory Coast farmers shipped 1.16 MMT of cocoa thus far this marketing year—a rise of more than +27% from the previous year—this growth has slowed compared to the 35% increase reported last month.
Hershey’s Position Highlights Supply Concerns
A significant factor supporting cocoa prices is Hershey Co.’s recent move to seek CFTC approval for the purchase of a large amount of cocoa on the ICE Futures Exchange due to tight global supply conditions. Bloomberg reported that Hershey intends to acquire more than 90,000 MT of cocoa on ICE Futures US, which exceeds the exchange’s current limit by over nine times. This transfer reveals the severe global cocoa shortages forcing companies to seek alternative purchasing methods.
Crop Concerns Amid West African Weather Challenges
Further support for cocoa prices stems from crop production worries in West Africa. Recently, farmers in Ivory Coast and Nigeria reported that their cocoa trees are beginning to suffer from the seasonal Harmattan winds, causing leaves to yellow and cocoa pods to wither.
Back on December 18, NY Cocoa reached its highest price for nearest futures, while London Cocoa reached an 8.5-month nearest futures high, driven by a negative outlook for the West African cocoa mid-crop. Maxar Technologies warned that drought conditions in West Africa could significantly impair the development of the mid-year cocoa crop, with the Harmattan winds likely exacerbating the situation.
International Cocoa Association’s Optimistic Deficit Forecast
In a more optimistic note, the International Cocoa Association (ICCO) updated its 2023/24 global cocoa deficit estimate on November 22, upping it to -478,000 MT from -462,000 MT in May, marking the largest deficit in over six decades. The ICCO also revised its 2023/24 cocoa production estimate down to 4.380 MMT from 4.461 MMT in May, reflecting a -13.1% year-over-year decline. The ICCO projects a global cocoa stocks/grindings ratio of just 27.0%, the lowest level in 46 years.
Mixed Signals from Nigerian Cocoa Exports
Meanwhile, Nigeria, the world’s sixth-largest cocoa producer, is recording stronger cocoa exports. November’s cocoa exports surged +35% year-over-year, totaling 38,015 MT, which could drive prices lower.
Regulatory Updates from Ivory Coast and Ghana
On a more negative note, the Ivory Coast’s regulator, Le Conseil Cafe-Cacao, announced an increase in its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT, up from a June forecast of 2.0 MMT. Meanwhile, in August, Ghana’s Cocoa Board (Cocobod) announced a reduction in its 2024/25 cocoa production estimate to 650,000 MT, down from 700,000 MT due to adverse weather and crop diseases. Ghana, the world’s second-largest cocoa producer, reported a 23-year low harvest of just 425,000 MT for 2023/24.
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.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
