Cocoa Prices Surge on Supply Concerns Amidd West Africa’s Dry Season
High demand and insufficient rainfall are impacting cocoa futures, sending prices up significantly.
March ICE NY cocoa (CCH25) has increased by +414 (+4.26%), while March ICE London cocoa #7 (CAH25) has risen by +242 (+3.10%). Cocoa prices have jumped sharply today, primarily due to a lack of rainfall in West Africa which has led to short covering in cocoa futures. Farmers in the Ivory Coast and Ghana, the leading cocoa producers globally, report that recent rains have failed to support tree health, affecting regeneration and flowering.
In addition to weather conditions, concerns about declining exports from Ivory Coast have also contributed to rising prices. Recent government reports indicated that farmers shipped 1.32 million metric tons (MMT) of cocoa to ports by February 9, marking a more than +21% increase from last year. However, growth rates have slowed from 35% in December.
Last week, the cocoa market faced pressures from lower demand. Hershey, a prominent chocolate manufacturer, announced its need to reformulate recipes by substituting other ingredients for cocoa due to high prices. Meanwhile, Mondelez International’s CFO Zarmella highlighted a reduced cocoa consumption trend, especially noted in North America.
In the fourth quarter of 2022, rising cocoa prices significantly impacted demand. The European Cocoa Association recorded a -5.3% year-on-year decline in European cocoa grindings, totaling 331,853 metric tons—the lowest in over four years. Similarly, the Cocoa Association of Asia and the National Confectioners Association reported declines in their respective cocoa grindings, further confirming the trend.
Concerns about West African crop production are supporting higher cocoa prices. Maxar Technologies reported that current Harmattan winds—a seasonal dry period—are the driest in six years, worsening conditions for cocoa crops. Farmers in the Ivory Coast and Ghana noted symptoms of stress on their trees, with leaves turning yellow and cocoa pods beginning to wither.
The potential for a widening global cocoa deficit is another bullish factor. On January 24, the International Cocoa Organization (ICCO) released data showing global cocoa stockpiles dropping to 1.041 MMT at the end of the 2023/24 season, representing a -36% decrease from last year and indicating a possible cocoa deficit of -478,000 MT—larger than anticipated.
Tight global inventories are also pushing prices upward. Cocoa inventories monitored by ICE in U.S. ports have been falling for the past 1.5 years, recently hitting a 21-year low of 1,263,493 bags as of January 24. Hershey has sought approval from the CFTC to buy significant quantities of cocoa through the ICE Futures Exchange, driven by tight supplies, indicating robust demand even amidst high prices.
The all-time high for NY Cocoa was set on December 18, while London Cocoa reached a nine-month peak, following concerns about the West African mid-crop outlook. Maxar Technologies warned that continued dry conditions may harm the upcoming mid-year cocoa harvest set for April.
In a significant update, the ICCO raised its 2023/24 global cocoa deficit estimate to -478,000 MT, revising downwards its production forecast to 4.380 MMT, a -13.1% year-on-year decrease. Furthermore, the projected global stocks-to-grindings ratio has fallen to 27%, the lowest in 46 years.
While some factors support higher prices, stronger cocoa exports from Nigeria, the world’s sixth-largest producer, present a bearish outlook. In December, Nigeria’s cocoa exports rose by +87% year-on-year to 46,696 metric tons.
On a cautionary note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, increased its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT, up from 2.0 MMT previously forecasted.
Support for cocoa prices also comes from Ghana’s Cocoa Board, which recently lowered its 2024/25 production estimate to 650,000 MT, down from a previous forecast of 700,000 MT due to adverse weather and crop diseases. The 2023/24 harvest for Ghana is expected to hit a 23-year low of 425,000 MT as the country grapples with difficulties.
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 details, please view the Barchart Disclosure Policy here.
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