Cocoa Markets Driven by Supply Changes and Weather Variability
Current Performance and Supply Dynamics
March ICE NY cocoa (CCH25) closed down -168 (-1.82%) on Wednesday, while March ICE London cocoa #7 (CAH25) decreased by -194 (-2.54%).
Increased cocoa supplies from Nigeria, the world’s sixth-largest producer, contributed to downward pressure on cocoa prices. Nigeria’s October cocoa exports rose by 15% year-on-year, reaching 20,508 MT. Additionally, losses in London cocoa prices accelerated after the British pound (^GBPUSD) surged to a one-week high, impacting cocoa priced in sterling.
Price Fluctuations and Weather Impacts
Prices had shown a positive trend recently, driven by uncertainty surrounding future cocoa supplies. On Friday, NY cocoa reached a 2.5-month high, while London cocoa hit a 4.25-month high. These increases followed heavy rains in the Ivory Coast, which resulted in higher mortality rates for cocoa buds on trees.
Adverse weather conditions in West Africa have sharply affected cocoa prices. Flooding in the Ivory Coast raised health risks for crops and negatively impacted quality. Recent harvests from the Ivory Coast indicated lower quality cocoa beans, with counts of approximately 105 beans per 100 grams. Notably, the Ivory Coast’s cocoa regulator allows exporters to source beans with counts between 80 to 100 or slightly above for every 100 grams, with lower counts representing better quality.
Stock Levels and Supply Forecasts
Declining global cocoa inventories are seen as favorable for price increases. ICE-monitored cocoa inventories in U.S. ports have been decreasing over the past 1.5 years, hitting a 19-year low of 1,565,246 bags on Wednesday.
Conversely, rising supplies from the Ivory Coast could lead to lower prices. Data released on Monday indicated that Ivory Coast farmers shipped 642,500 MT of cocoa to ports between October 1 and November 24, a 34% increase from 415,523 MT during the same period last year. Furthermore, the country’s regulatory body, Le Conseil Cafe-Cacao, raised its 2024/25 cocoa production estimate to between 2.1 and 2.2 MMT, up from a previous forecast of 2.0 MMT made in June.
Global Demand Insights
Recently released data regarding global cocoa demand presents a mixed picture. The National Confectioners Association reported on October 17 that North American Q3 cocoa grindings rose by 12% year-on-year to 109,264 MT. Meanwhile, the Cocoa Association of Asia noted a 2.6% increase in Q3 cocoa grinding to 216,998 MT. In contrast, European Q3 cocoa grindings decreased by 3.3% year-on-year to 354,335 MT, according to the European Cocoa Association.
Production Estimates and Market Outlook
Cocoa futures found support following Ghana’s Cocoa Board (Cocobod) announcement on August 20, which lowered its 2024/25 production estimate from 700,000 MT to 650,000 MT due to adverse weather and crop disease. Ghana’s 2023/24 cocoa harvest is projected to be the lowest in 23 years at 425,000 MT. As the world’s second-largest cocoa producer, Ghana’s harvest cycle begins in October.
Additionally, on August 30, the International Cocoa Organization (ICCO) raised its 2023/24 global cocoa deficit estimate to -462,000 MT, the largest deficit recorded in over 60 years. This revision also included a reduction of the 2023/24 cocoa production forecast to 4.330 MMT from 4.461 MMT previously. The ICCO also projected a significant drop in the global cocoa stocks-to-grindings ratio, anticipating it to hit a 46-year low of 27.4%.
On the date of publication, Rich Asplund did not hold any positions in the securities discussed in this article. All information is intended for informational purposes only. For further details, please view the Barchart Disclosure Policy here.
The views and opinions in this article are those of the author and do not necessarily represent those of Nasdaq, Inc.
