Cocoa Prices Surge Amid Weather Woes and Supply Changes
On Friday, December ICE NY cocoa (CCZ24) rose by +448 (+5.30%), while December ICE London cocoa #7 (CAZ24) increased by +413 (+5.62%).
Weather Impacts Cocoa Outputs
The cocoa market experienced a leap in prices on Friday, with New York cocoa hitting a 2-1/2 month peak and London cocoa reaching a 4-1/4 month high due to heavy rains affecting the Ivory Coast. Reports indicate that these rains have severely harmed cocoa buds on trees, leading to concerning mortality rates.
Weak Pound Fuels London Cocoa Gains
London cocoa gains intensified as the British pound (^GBPUSD) sank to a 6-1/2 month low. This currency dip benefits cocoa prices because they are measured in pounds.
Crop Quality Declines Amid Adverse Conditions
Recent weather troubles in West Africa are driving cocoa prices upward. The extreme rainfall has flooded fields and raised the risk of diseases, adversely affecting crop quality. Newly harvested cocoa beans from the Ivory Coast are showing lower quality, with counts around 105 beans per 100 grams. Notably, the Ivory Coast’s cocoa regulator permits exports to include bean counts from 80 to 100, with lower counts signifying higher quality.
Challenges with Global Cocoa Stocks
Decreasing global cocoa reserves fuel bullish sentiments for prices. Cocoa inventories monitored by ICE at U.S. ports have continuously declined over the past 1-1/2 years, reaching a 19-year low of 1,595,940 bags this Friday.
Increased Supplies from the Ivory Coast
However, a bearish influence on cocoa prices comes from rising supplies out of the Ivory Coast, the leading cocoa producer. Data released Monday indicated that Ivory Coast farmers sent 548,494 MT of cocoa to ports from October 1 to November 17, representing a 32% increase from last year’s figure of 415,523 MT during the same period. Additionally, the Ivory Coast’s cocoa regulator, Le Conseil Cafe-Cacao, raised its 2024/25 production forecast to between 2.1 and 2.2 MMT, up from June’s estimate of 2.0 MMT.
Mixed Signals on Global Cocoa Demand
Recent reports on global cocoa demand present mixed results. The National Confectioners Association found that North American Q3 cocoa grindings climbed +12% year-on-year to 109,264 MT. Likewise, the Cocoa Association of Asia noted a +2.6% yearly increase in Q3 cocoa grinding, totaling 216,998 MT. In contrast, the European Cocoa Association reported a decline in European Q3 cocoa grindings by -3.3% y/y, reaching 354,335 MT.
Ghana’s Production Estimates and Market Effects
Cocoa prices have found some support following news that Ghana’s Cocoa Board (Cocobod) cut its 2024/25 production estimate from 700,000 MT to 650,000 MT due to adverse climate conditions and crop ailments, leading to a 23-year low harvest of 425,000 MT for the 2023/24 season. Ghana ranks as the second-largest cocoa producer globally, with the new harvest beginning in October.
Impact of Other Cocoa Producers
On the bearish side, Cameroon, the fifth-largest cocoa producer, noted a +1.2% increase in cocoa output to 266,725 MT for the 2023/24 crop year. Additionally, Nigeria’s cocoa exports rose by +6.8% y/y to 14,984 MT, as Nigeria stands as the sixth-largest producer.
Global Cocoa Deficit Projections
In contrast to these rising supplies, the International Cocoa Association (ICCO) raised its 2023/24 global cocoa deficit estimate to -462,000 MT, the largest in over 60 years. The ICCO also reduced its production estimate to 4.330 MMT from 4.461 MMT. The projected global cocoa stocks/grindings ratio is at a 46-year low of 27.4%.
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 those of the author and do not necessarily reflect those of Nasdaq, Inc.
