Cocoa Prices Surge Amid Crop Concerns and Supply Tightening
March ICE NY cocoa (CCH25) closed up +1,383 (+13.66%) on Monday, while March ICE London cocoa #7 (CAH25) saw a rise of +997 (+12.28%).
Weather Woes Drive Cocoa Demand
Cocoa prices experienced a significant rebound on Monday, recovering nearly all the losses from the previous week. The rise was driven by concerns over crop production in West Africa. Reports indicate that cocoa trees in Ivory Coast and Nigeria are showing signs of stress due to the seasonal dry and dusty Harmattan winds, causing leaves to turn yellow and cocoa pods to wither.
Record Highs Amid Crop Challenges
On December 18, NY Cocoa reached an all-time nearest-futures high, and London Cocoa hit an 8-month nearest-futures high, following negative forecasts for the West African mid-crop. Maxar Technologies has cautioned that dry conditions may adversely affect the early growth of the mid-year cocoa crop, which is typically harvested in April. The additional challenges posed by the Harmattan winds could further exacerbate crop woes.
Declining Cocoa Stockpiles Support Prices
Global cocoa inventories have been shrinking, contributing to bullish market sentiment. ICE-monitored cocoa stocks at U.S. ports fell to a 20-year low of 1,367,084 bags last Friday, a decline that has persisted for the past 1.5 years.
Ghana’s Harvest Forecast Declines Again
On December 20, Ghana announced a 5% reduction in its 2024/25 cocoa harvest forecast, marking the second downward adjustment of the season due to weather uncertainties.
Worsening Global Cocoa Deficit
The International Cocoa Association (ICCO) also raised its global cocoa deficit estimate for 2023/24 to -478,000 MT from a previous estimate of -462,000 MT, representing the largest deficit in over six decades. Furthermore, ICCO has cut its cocoa production estimate to 4.380 MMT, a decline of 13.1% year-on-year.
Heavy Rains Impact Quality and Quantity
Heavy rainfall in West Africa has led to reports of increased bud mortality on cocoa trees, further driving prices upward. In Ivory Coast, flooding has not only affected fields but also heightened the risk of disease, compromising crop quality. Recent harvests revealed that the quality of cocoa beans from the region has diminished, with counts of about 105 beans per 100 grams; the best cocoa typically has a lower count.
Increased Shipments Pressure Prices
Conversely, strong cocoa shipments from Ivory Coast could dampen prices. Government reports indicate that farmers shipped 1.05 MMT of cocoa to ports between October 1 and December 29, marking a 27% increase from 824,730 MT during the same period last year.
Nigeria’s Exports Rise as Supply Grows
Nigeria, the world’s sixth-largest cocoa producer, saw a 35% year-on-year increase in cocoa exports in November, totaling 38,015 MT, also placing downward pressure on prices.
Mixed Demand Signals from Global Markets
Recent data on global cocoa demand has shown mixed results. The National Confectioners Association, on October 17, reported a 12% year-on-year increase in North American cocoa grindings for Q3, totaling 109,264 MT. Meanwhile, the Cocoa Association of Asia noted a rise of 2.6% in Q3 grindings to 216,998 MT. In contrast, the European Cocoa Association reported a 3.3% decline to 354,335 MT for the same period.
Ghana Faces Production Challenges
Support for cocoa prices emerged after Ghana’s Cocoa Board reduced its 2024/25 production estimate to 650,000 MT from a June forecast of 700,000 MT. The country is grappling with bad weather and crop disease, leading to its 2023/24 cocoa harvest hitting a 23-year low at 425,000 MT. As the second-largest cocoa producer worldwide, Ghana’s struggles add to the market’s anxiety.
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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