Cocoa Prices Shift: NY Cocoa Declines, London Reaches New Heights
Market Overview: Diverging Trends in Cocoa Prices
December ICE NY cocoa (CCZ24) Friday closed down -79 (-0.91%), while December ICE London cocoa #7 (CAZ24) rose +89 (+1.27%). Mixed results were seen in cocoa prices, as London cocoa hit a four-month high. Meanwhile, NY cocoa fell from a two-month high on profit-taking before the weekend. The decline in the British pound (^GBPUSD) to a 4-1/2 month low supported the London market, as a weaker pound enhances the value of cocoa priced in sterling.
European Legislation Impact: A New Deforestation Regulation
Support for cocoa prices stems from the European Parliament’s recent vote to amend its deforestation regulations. If the EU fails to finalize these changes by next month’s deadline, the EU Deforestation Regulation (EUDR) will take effect. This could restrict supply of cocoa and other commodities sourced from deforested areas. The regulation mandates that companies verify their products have not been produced in regions deforested or degraded post-2020.
Weather Woes: West Africa Faces Cocoa Challenges
Weather conditions have also played a role in rising cocoa prices. According to forecaster Maxar Technologies, parts of Ghana and Nigeria are experiencing drought conditions, which could harm the cocoa mid-crop set to begin in April. Additionally, recent heavy rains in the Ivory Coast have led to flooding, increasing disease risk and impacting crop quality. Harvested beans from the Ivory Coast are showing lower quality, with counts of about 105 beans per 100 grams—higher counts generally indicate lower quality cocoa.
Decreasing Cocoa Inventories: A Positive Indicator
Falling global cocoa stockpiles have been a bullish factor for prices. ICE-monitored cocoa inventories in US ports have been dropping for 17 months and recently hit a 19-year low of 1,656,818 bags.
Market Sentiments: Producer Insights and Supply Trends
Cocoa prices received additional support from Barry Callebaut’s CEO, who stated that while West African cocoa crops show “significant improvement versus last year,” they have not yet reached the levels of the 2022/23 season. However, the ongoing increase in the Ivory Coast cocoa harvest could counter this sentiment. Recent government data revealed that from October 1 to November 10, farmers in the Ivory Coast shipped 454,624 MT of cocoa to ports, a 30% increase from 348,560 MT during the same period last year.
Production Estimates: Ivory Coast and Beyond
On October 18, the Ivory Coast cocoa regulator, Le Conseil Cafe-Cacao, raised its 2024/25 production estimate to a range of 2.1-2.2 MMT, up from 2.0 MMT earlier this year. Demand news has been mixed; the National Confectioners Association reported that North American Q3 cocoa grindings climbed 12% year-on-year to 109,264 MT. Simultaneously, the Cocoa Association of Asia noted a 2.6% increase in Q3 grindings to 216,998 MT. However, the European Cocoa Association reported a drop of 3.3% in European Q3 grindings, totaling 354,335 MT.
Global Supply Dynamics: Ghana, Cameroon, and Nigeria’s Production
Ghana’s Cocoa Board (Cocobod) has revised its 2024/25 cocoa production estimate to 650,000 MT, down from 700,000 MT, due to adverse weather and crop disease. Ghana, the second-largest cocoa producer globally, reported its 2023/24 harvest at a 23-year low of 425,000 MT. Conversely, an increase in cocoa production from Cameroon, the world’s fifth-largest producer, is seen as bearish for prices, with 2023/24 production up 1.2% to 266,725 MT. Nigeria’s August cocoa exports also saw a rise of 6.8% to 14,984 MT.
Deficits in Market: ICCO’s Projections Raise Concerns
Further, the International Cocoa Association (ICCO) has raised its 2023/24 global cocoa deficit estimate to -462,000 MT—marking the largest deficit in over 60 years—while reducing its production estimate to 4.330 MMT from 4.461 MMT. The ICCO has also projected a stocks-to-grindings ratio at a 46-year low of 27.4%.
On the date of publication, Rich Asplund did not hold any positions in the mentioned securities. This article is for informational purposes only; for further details, please view the Barchart Disclosure Policy here.
The views expressed in this article do not necessarily reflect those of Nasdaq, Inc.
