Market Reactions and Margins
The cocoa market is currently experiencing a myriad of reactions to market forces. The May ICE NY cocoa (CCK24) is down -86 (-1.07%), while May ICE London cocoa #7 (CAK24) is up +17 (+0.25%) this morning.
A surge in the dollar value resulted in long liquidation in cocoa futures, triggered by the dollar index reaching a 2-1/2 week peak. Additionally, ICE Futures’ decision to elevate margin requirements for cocoa futures added pressure, making it more expensive to retain trading positions.
Supply Concerns and Price Surge
This week, cocoa prices extended their parabolic rally, reaching record highs over the past two months, primarily due to tightening supplies from West Africa. The dwindling cocoa production in Ivory Coast, the largest producer globally, serves as a key driving force behind the surging cocoa prices. Government data from Monday revealed a 28% decline in cocoa shipments by Ivory Coast farmers compared to the previous year, indicating a significant supply constraint.
Forecasts regarding the Ivory Coast mid-crop starting in April predict a steep drop of 33% compared to last year. Ecom Agroindustrial projects a substantial 21.5% decline in cocoa production for the 2023/24 season, further exacerbating the supply crunch.
The International Cocoa Organization (ICCO) predicted a widening global cocoa deficit for 2023/24, anticipating a decrease of 11% in global cocoa production. Moreover, global cocoa grindings are estimated to plummet by nearly 5%, resulting in the lowest stock-to-grindings ratio in over 40 years.
The adverse weather conditions and crop diseases in West Africa have hampered cocoa production, steering cocoa prices to unprecedented levels. The ongoing cocoa deficit is expected to spill over into the upcoming season due to the inadequate current production levels.
Global Impact and Demand Trends
The decreased cocoa exports from Nigeria, the fifth-largest cocoa producer worldwide, are adding bullish momentum to prices following a 15% year-on-year drop in January cocoa exports.
The Ivory Coast cocoa regulator’s decision to halt forward cocoa sales for the 2024/25 season on January 25 has further disrupted the region’s cocoa supplies, intensifying supply apprehensions.
Record-high cocoa prices are beginning to impact global demand negatively. The National Confectioners Association reported a 3.0% year-on-year decline in North American cocoa grindings. Furthermore, the Cocoa Association of Asia and the European Cocoa Association noted respective 8.5% and 2.5% decreases in Q4 cocoa grindings.
