Cocoa Prices Drop Amid Global Supply Concerns
Recent weather in West Africa and rising export issues lead to significant declines in cocoa futures.
March ICE NY cocoa (CCH25) is down -538 (-4.58%), while March ICE London cocoa #7 (CAH25) has dropped -342 (-3.72%). Cocoa prices are reaching 1-1/2 week lows, driven by increased soil moisture due to recent rains in West Africa, which have lessened dry conditions. This has prompted long liquidation pressure in cocoa futures.
The price fluctuation follows last Wednesday’s noticeable gains, where NY cocoa reached a 3-week high and London cocoa rose to a 5-week high, primarily due to crop production concerns in West Africa. According to forecaster Maxar Technologies, this year’s Harmattan winds are the driest in six years, negatively impacting crop conditions. Reports from farmers in Ivory Coast and Ghana indicate that cocoa trees are struggling, with leaves yellowing and cocoa pods wilting due to the dry and dusty winds.
Another concern is the potential slowdown of cocoa exports from Ivory Coast, which could tighten global supplies. Government data released Monday shows that Ivory Coast farmers have shipped 1.24 million metric tons (MMT) of cocoa so far this marketing year, marking an increase of over 24% compared to last year. However, this growth rate has slowed from the 35% increase noted last month.
Market analysts are also eyeing the potential for a widening global cocoa deficit, which could support price increases. The International Cocoa Organization (ICCO) reported last Friday that global cocoa stockpiles at the end of the 2023/24 season are projected to be 1.041 MMT, representing a 36% decrease year-over-year and lower than a previous estimate of 1.300 MMT. This data hints that the 2023/24 global cocoa deficit—projected at -478,000 MT—might be larger than previously anticipated.
Furthermore, dwindling cocoa inventories are adding upward pressure on prices. ICE-monitored cocoa stocks at U.S. ports have decreased over the past 1-1/2 years, recently hitting a 21-year low of 1,263,493 bags.
The situation in the cocoa market is also influenced by chocolatiers like Hershey Co., which recently sought approval from the Commodity Futures Trading Commission (CFTC) to purchase a substantial amount of cocoa through the ICE Futures Exchange due to tight supplies. Reports suggest Hershey is aiming to acquire over 90,000 MT of cocoa, significantly exceeding the current exchange and CFTC limits.
Looking back to December 18, NY Cocoa reached its all-time nearest-futures high while London Cocoa attained a 9-month nearest-futures high. This surge resulted from deteriorating expectations for West African cocoa mid-crop yields. Maxar Technologies indicated that dry conditions could adversely affect early growth of the forthcoming crop, which is scheduled to be harvested in April.
In November, ICCO revised its 2023/24 global cocoa deficit estimate to -478,000 MT from a previously reported -462,000 MT, marking the largest deficit in over 60 years. Additionally, cocoa production estimates dropped to 4.380 MMT from 4.461 MMT in May, reflecting a 13.1% year-on-year decline. The ICCO has projected a stocks/grindings ratio of 27.0% for the upcoming harvest, the lowest in 46 years.
On the downside, high prices are causing concerns about demand. In a report on January 9, the European Cocoa Association disclosed that Q4 grindings in Europe had fallen 5.3% year-on-year to 331,853 MT, the lowest level in over four years. Similarly, Asian grindings decreased by 0.5%, and North American grindings dropped by 1.2% in the same quarter.
Bearish sentiments are also being fueled by rising cocoa exports from Nigeria, which posted an impressive 87% year-on-year increase in December, exporting 46,696 MT.
Compounding these challenges, the Ivorian cocoa regulatory body, Le Conseil Cafe-Cacao, raised its estimate for Ivory Coast’s 2024/25 cocoa production to a range of 2.1-2.2 MMT, up from a June forecast of 2.0 MMT.
Meanwhile, support was observed earlier in August when Ghana’s Cocoa Board reduced its 2024/25 production estimate due to adverse weather conditions and crop diseases. Ghana’s cocoa harvest for 2023/24 was recorded at a low of 425,000 MT, marking a 23-year low for the country, which is the second-largest cocoa producer globally.
On the date of publication, Rich Asplund did not hold positions in any of the mentioned securities. This article is for informational purposes only. Please consult the Barchart Disclosure Policy for further details.
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