Cocoa Prices Surge Amid Production Concerns in West Africa
March ICE NY cocoa (CCH25) is currently up +324 (+2.90%), while March ICE London cocoa #7 (CAH25) has increased by +208 (+2.31%).
Production Woes Drive Price Increase
Today, cocoa prices rose to their highest levels in two weeks, fueled by concerns about crop production in West Africa. Cocoa farmers in Ivory Coast and Ghana report that their trees are showing the adverse effects of the Harmattan winds, resulting in yellow leaves and shriveling cocoa pods.
Global Inventory Levels Are at a 21-Year Low
Declining global cocoa inventories are also supporting higher prices. Cocoa stocks monitored by the ICE at U.S. ports have diminished over the past 18 months, recently hitting a 21-year low of 1,292,153 bags.
Exports from Ivory Coast Show Slowing Growth
Concerns about slowing cocoa exports from Ivory Coast are also influencing global market conditions. Although government data released on Monday indicated that farmers have shipped 1.20 million metric tons (MMT) this marketing year—up over 26% compared to last year—the growth rate has decreased from 35% just last month.
Demand Weakening Amid High Prices
Last Thursday, cocoa prices dipped to their lowest point in a week due to fears that rising costs were dampening demand. The European Cocoa Association reported a 5.3% year-over-year drop in cocoa grindings for Q4, totaling 331,853 metric tons, marking a four-year low. Similarly, the Cocoa Association of Asia noted a 0.5% decline, while the National Confectioners Association reported a 1.2% decrease in North American cocoa grindings for the same quarter.
Hershey’s Large Purchase Request Highlights Supply Concerns
The situation is compounded by Hershey Co. seeking approval from the CFTC to buy a substantial quantity of cocoa through the ICE Futures Exchange. Reports suggest that Hershey intends to purchase over 90,000 metric tons on ICE Futures US, a figure more than nine times greater than the current exchange limit. This reflects a significant worry over global cocoa shortages, with deliveries through the New York exchange now cheaper than purchasing directly in the physical market.
Futures Prices Reach Historical Highs
On December 18, cocoa futures in New York reached an all-time high, while London saw its highest level in eight and a half months due to declining production forecasts for the West African mid-crop. Maxar Technologies indicated that dry weather would negatively impact the early development of this cocoa harvest.
ICCO Reports Largest Deficit in Over Six Decades
In a recent bullish update, the International Cocoa Association (ICCO) raised its global cocoa deficit estimate for 2023/24 to -478,000 metric tons, up from May’s -462,000 metric tons, marking the largest deficit seen in over 60 years. The ICCO also lowered its cocoa production estimate to 4.380 MMT, revealing a 13.1% decline year-over-year, and projected the lowest cocoa stocks/grindings ratio in 46 years at 27.0%.
Heavy Rain Impacts Crop Quality
Reports indicate that heavy rainfall in West Africa has resulted in high mortality rates among cocoa buds and significantly affected cocoa quality. Fields in Ivory Coast are flooded, creating greater risks for disease, and recently harvested beans suggest lower quality, with counts nearing 105 beans per 100 grams. Exporters are allowed to source beans with counts ranging from 80 to 100 per 100 grams for optimal quality.
Nigeria Offers Mixed Signals
In contrast, stronger cocoa exports from Nigeria, the world’s sixth-largest producer, are putting additional pressure on prices. Exports from Nigeria rose by 35% year-over-year to 38,015 metric tons in November.
Production Estimates Remain Variable
On a cautious note, the Ivory Coast regulator, Le Conseil Cafe-Cacao, recently increased its 2024/25 cocoa production estimate to between 2.1 to 2.2 MMT, up from a previous forecast of 2.0 MMT. Conversely, Ghana’s Cocoa Board (Cocobod) lowered its 2024/25 estimate to 650,000 metric tons from 700,000 metric tons due to adverse weather conditions and crop diseases that have affected this year’s harvest, resulting in the lowest output in 23 years at 425,000 metric tons. Ghana holds the position as the world’s second-largest cocoa producer.
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 the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
