Boosted by an Unyielding Rally:
ICE NY cocoa (CCK24) closed up +309 (+3.12%) on Tuesday, while May ICE London cocoa #7 (CAK24) closed up +36 (+0.44%). Cocoa prices triumphed on Tuesday, propelled by a sharp surge in NY cocoa as they hover just below their recent all-time highs. London cocoa, however, faced limited gains as the British pound (^GBPUSD) soared to a 2-1/2 week high, undermining cocoa priced in sterling terms.
A Historical Leap in Prices:
This year has witnessed an unprecedented soar in cocoa prices, with NY cocoa hitting a record high on Monday and London cocoa scaling an all-time peak the previous Tuesday. The surge is attributed to anxiety over dwindling global cocoa supplies. Global cocoa grinders are currently grappling with escalated cash market prices to secure cocoa reserves owing to mounting apprehensions of defaults by West African cocoa suppliers. Prices have more than doubled (+143%) since the year’s commencement, fueled by the worst supply deficit witnessed in four decades.
A Dark Cloud Over Ivory Coast:
The decline in cocoa production in the Ivory Coast, the world’s pinnacle producer, stands out as a pivotal driver of the upward trajectory in cocoa prices. Recent government data unveiled a 27.8% plunge in the cocoa shipments of Ivory Coast farmers to ports from October 1 to April 7, compared to the corresponding period last year. Ecom Agroindustrial, a notable trader, projects an ominous -21.5% year-on-year dip in the Ivory Coast’s cocoa production for the 2023/24 season, plummeting to an 8-year nadir of 1.75 MMT.
A Globally Felt Pinch:
Ghana’s Cocoa Board (Cocobod) disclosed that the cocoa harvest for the 2023/24 season in Ghana is expected to be a mere 422,500 MMT to 425,000 MT, half the nation’s initial forecast and a 22-year low. Harsh weather conditions and diseases have ravaged the cocoa crop, resulting in this grim outlook.
Tightening Grip on Supplies:
Concerns loom over the West African mid-crop, the smaller of the two annual harvests, leading to a constricted supply of cocoa. Projections for the Ghana mid-crop, set to commence in July, have been notched down to 25,000 MT from the prior estimate of 150,000 MT. Nigeria’s mid-crop forecasts have also been slashed to 76,500 MT from the earlier projection of 90,000 MT.
Balancing Act in the Market:
Recent efforts by the governments of Ivory Coast and Ghana to boost farm-gate prices for cocoa producers, though laudable, might cause a transient alleviation in tight supplies. The move aims to encourage cocoa growers holding onto their produce to release more beans into the market.
Global Ripples:
The repercussions of unfavorable growing conditions and crop diseases on West African farms have been a major drag on cocoa production, propelling prices to unprecedented heights. A looming global cocoa deficit is expected to persist into the 2023/24 period due to inadequate current production capacity to meet the burgeoning demand.
Curbing Global Demand:
Record-high cocoa prices are beginning to stifle global demand. Reports indicate a decline in North American, Asian, and European cocoa grindings in the final quarter of last year, indicating a dampened appetite for cocoa consumption.
More Cocoa News from Barchart
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.
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