Cocoa Prices Surge Amid West African Weather Concerns
On Tuesday, December ICE NY cocoa (CCZ24) finished at +327 (+4.29%), while December ICE London cocoa #7 (CAZ24) rose by +149 (+2.64%).
Cocoa prices have increased sharply, with NY cocoa reaching a two-week high. This rise is largely attributed to heavy rainfall in West Africa, which has caused flooding and hindered cocoa farmers from working in the fields, thus delaying the harvest. Additionally, the rain complicates the drying process for harvested cocoa beans, negatively impacting their quality.
The declining cocoa production in the Ivory Coast, the globe’s largest supplier, also supports higher cocoa prices. According to government data released on Monday, farmers from the Ivory Coast shipped 100,264 MT of cocoa to ports from October 1 to October 13. This figure marks a 12% drop from the 114,000 MT shipped during the same period last year.
Furthermore, diminishing global cocoa stockpiles are a bullish factor for cocoa prices. ICE-monitored cocoa inventories in US ports have decreased over the past 15 months, now standing at a 15-year low of 1,976,233 bags.
Earlier in the month, NY cocoa prices fell to their lowest point in 4.75 months following the European Commission’s decision to delay an anti-deforestation law for a year. This legislation, originally set to go into effect on December 30, aims to limit forest clearing in countries that export goods like cocoa to the EU. The postponement allows certified cocoa stockpiles in Europe to be utilized for contracts, alleviating fears that the new law would lead to decertification and further limit cocoa supplies.
Support for cocoa prices has also emerged from Ghana’s Cocoa Board (Cocobod), which on August 20 revised its 2024/25 cocoa production estimate down to 650,000 MT from a previous forecast of 700,000 MT. Bad weather and crop diseases contributed to Ghana’s 2023/24 cocoa harvest falling to a 23-year low of 425,000 MT. As the world’s second-largest cocoa producer, Ghana’s harvest season begins in October.
On the flip side, an increase in cocoa production from Cameroon, the fifth-largest cocoa producer, presents a bearish factor. As reported by Cameroon’s National Cocoa and Coffee Board on August 21, cocoa production for the 2023/24 season rose by 1.2% year-over-year to 266,725 MT. Additionally, Nigeria’s cocoa exports grew by 6.8% year-over-year to 14,984 MT in August, as Nigeria ranks as the sixth-largest cocoa producer.
Despite the challenges, cocoa prices found support from better-than-expected demand in the second quarter, though demand likely tapered off in the third quarter due to elevated prices. The National Confectioners Association noted on July 18 that the North American cocoa grindings increased by 2.2% year-over-year to 104,781 MT, defying expectations for a slight decline. Similarly, the Cocoa Association of Asia reported a smaller than expected drop in Asian cocoa grindings, which fell by 1.4% year-over-year to 210,958 MT. Furthermore, the European Cocoa Association indicated on July 11 that Q2 European cocoa grindings rose unexpectedly by 4.1% year-over-year to 357,502 MT, in contrast to expectations of a decline.
In a further bullish sign, the International Cocoa Association (ICCO) raised its global cocoa deficit estimate for 2023/24 to -462,000 MT from May’s estimate of -439,000 MT. This marks the largest deficit in over six decades. The ICCO also lowered its cocoa production estimate for the same period to 4.330 million MT from 4.461 million MT. The organization projected that the 2023/24 global cocoa stocks/grindings ratio would hit a 46-year low of 27.4%.
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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 further details, please view the Barchart Disclosure Policy
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The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
