Cocoa Prices Decline Amid Global Supply Concerns
Market Sees Continued Pressure from Increased Rainfall and Strong Dollar
March ICE NY cocoa (CCH25) is down -229 (-2.04%), while March ICE London cocoa #7 (CAH25) is down -224 (-2.54%).
Today, cocoa prices dropped further, continuing Thursday’s significant losses. NY cocoa reached a two-week low, and London cocoa hit a one-month low. Recent rains in West Africa have improved soil conditions, leading to long liquidation in cocoa futures, and the market lost momentum today after the dollar index (DXY00) reached a one-week high.
Crop Concerns and Market Response
On Wednesday, NY cocoa hit a three-week high, while London cocoa recorded a five-week high due to worries about crop production in West Africa. Maxar Technologies reported that this year’s Harmattan winds are the driest in six years, negatively impacting crop conditions. Some farmers in Ivory Coast and Ghana have noted that cocoa trees are struggling, with yellow leaves and wilting cocoa pods.
Concerns about slowing cocoa exports from Ivory Coast have created additional pressure on global supplies. According to recent government data, farmers in Ivory Coast have shipped 1.24 million metric tons of cocoa, which is over 24% more than last year but a decrease from the 35% jump seen last month.
Global Cocoa Deficit Signals Higher Prices
Worries about a widening global cocoa deficit may support prices further. The International Cocoa Organization (ICCO) reported that global cocoa stockpiles were at 1.041 million metric tons at the end of the 2023/24 season, a decrease of 36% year-on-year and less than an earlier estimate of 1.300 million metric tons. This signals that the ICO’s forecast for a global cocoa deficit of 478,000 metric tons could be more severe than first projected.
Additionally, tightening cocoa inventories worldwide add upward pressure on prices. Cocoa stocks monitored by ICE in U.S. ports have been declining for the past 1.5 years, reaching a 21-year low last Friday of 1,263,493 bags.
Hershey’s Strategic Moves Amid Shortages
Cocoa prices are also receiving support from Hershey Co., which has sought CFTC approval to buy large quantities of cocoa through the ICE Futures Exchange due to tight supply. Reports indicate that Hershey plans to purchase over 90,000 metric tons, a volume that exceeds nine times the current limit set by the exchange and surpasses the federal position limit of 49,000 metric tons. The shortages are so severe that it is now more cost-effective to acquire cocoa through the New York exchange than in the physical market.
Recent Market Highs and Future Outlook
On December 18, NY cocoa reached an all-time high in nearest-futures trading, while London cocoa hit a nine-month high amid worsening prospects for the West African cocoa mid-crop. Maxar Technologies has cautioned that continuing dry conditions could hinder the development of this crop, which is typically harvested in April.
In an additional bullish note, the ICCO raised its estimate for the 2023/24 global cocoa deficit to 478,000 metric tons, the largest in over 60 years, down from May’s estimate of 462,000 metric tons. They also revised their production forecast downward, now estimating it at 4.380 million metric tons, down 13.1% year-on-year, projecting a cocoa stocks/grindings ratio of 27.0%, marking a 46-year low.
Demand Pressures and Other Factors
However, high cocoa prices may be impacting demand negatively. The European Cocoa Association reported a 5.3% decline in Q4 European cocoa grindings, marking the lowest figure in over four years. Similarly, grindings in Asia fell by 0.5% in the same period, and North American grindings dropped by 1.2% year-on-year.
Amid these trends, rising exports from Nigeria, the world’s sixth-largest cocoa producer, also weigh on prices, with December cocoa exports rising by 87% year-on-year to 46,696 metric tons.
On a more positive note, the Ivory Coast regulator Le Conseil Cafe-Cacao has updated its 2024/25 production estimate to a range of 2.1-2.2 million metric tons, up from a June forecast of 2.0 million metric tons.
Ghana’s Cocoa Board (Cocobod) also provided support when it cut its 2024/25 cocoa production estimate to 650,000 metric tons from 700,000 metric tons, attributed to adverse weather and crop diseases. Ghana’s 2023/24 cocoa harvest has dropped to a 23-year low of 425,000 metric tons, underscoring the challenges faced by 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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