Cocoa Prices Surge Amid Crop Concerns in West Africa

Investors respond to production issues as trading remains volatile

March ICE NY cocoa (CCH25) has seen an increase of +56 (+0.49%), while March ICE London cocoa #7 (CAH25) is up +29 (+0.32%).

Cocoa prices are continuing the upward trend from Monday’s significant gains. Concerns about crop production in West Africa have led to increased fund buying of cocoa futures. Reports indicate that some cocoa farmers in the Ivory Coast and Nigeria are witnessing stress on their cocoa trees from the dry and dusty Harmattan winds, resulting in yellowing leaves and shriveling cocoa pods.

Liquidity in cocoa futures has been reduced in the past week due to thin holiday trading conditions and higher margin calls, causing more sharp price fluctuations.

On December 18, NY Cocoa reached an all-time nearest-futures high, and London Cocoa reached an 8-month nearest-futures high, driven primarily by worsening expectations for the West African mid-crop outlook. Maxar Technologies has warned that dry conditions may hinder early cocoa crop development, particularly for the mid-year crop expected in April, and the onset of Harmattan winds might exacerbate these issues.

Decreasing global cocoa stockpiles further support higher prices. According to recent data, ICE-monitored cocoa inventories in U.S. ports have been on a decline for 1.5 years, hitting a 20-year low last Friday at 1,367,084 bags.

Moreover, Ghana revised its 2024/25 cocoa harvest forecast downward by -5% due to weather concerns, marking the second reduction of the season.

In another notable development, the International Cocoa Association (ICCO) updated its 2023/24 global cocoa deficit estimate to -478,000 MT from May’s -462,000 MT, representing the largest deficit recorded in over 60 years. The ICCO also lowered its 2023/24 cocoa production estimate to 4.380 MMT from 4.461 MMT, indicating a -13.1% decrease year-over-year. The association forecasts a cocoa stocks/grindings ratio of 27.0%, a 46-year low.

Reports of heavy rain in West Africa have been linked to high mortality rates of cocoa buds on trees, causing a sharp increase in cocoa prices. Persistent flooding in the Ivory Coast has contributed to a higher risk of crop diseases and impacted overall crop quality. Recently harvested cocoa beans from this region demonstrate lower quality, with counts near 105 beans per 100 grams. The Ivory Coast cocoa regulator permits bean counts of 80 to 100 or slightly higher per 100 grams, with the finest quality having lower counts.

Despite these concerns, increased cocoa shipments from Ivory Coast, the world’s largest cocoa producer, exert downward pressure on prices. Government data reveals that Ivory Coast farmers shipped 1.05 MMT of cocoa to ports between October 1 and December 29, representing a +27% increase compared to 824,730 MT during the same period last year.

Likewise, stronger cocoa exports from Nigeria, the sixth-largest producer, also contribute to bearish price signals. Nigeria’s November cocoa exports increased by +35% year-over-year, totaling 38,015 MT.

On October 18, the Ivory Coast regulator Le Conseil Cafe-Cacao raised its 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT, up from a previous June forecast of 2.0 MMT.

The latest global cocoa demand statistics present a mixed picture. The National Confectioners Association reported a +12% year-over-year rise in North American Q3 cocoa grindings, totaling 109,264 MT. Furthermore, the Cocoa Association of Asia documented a +2.6% year-over-year increase in Q3 Asian cocoa grinding at 216,998 MT. Conversely, the European Cocoa Association noted a decline in European Q3 cocoa grindings, which fell -3.3% year-over-year to 354,335 MT.

Cocoa gains some support following Ghana’s Cocoa Board (Cocobod) cutting its 2024/25 cocoa production estimate to 650,000 MT from a June forecast of 700,000 MT, attributing this to adverse weather and crop disease. Last season, Ghana’s cocoa harvest plummeted to a 23-year low of 425,000 MT, highlighting the country’s struggles as the second-largest cocoa producer globally.

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 for informational purposes only. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.