What recent factors have influenced cocoa prices, and why are they consolidating below record highs? Cocoa prices are consolidating below last Friday’s record highs due to a combination of decreased production in the Ivory Coast, concerns over global cocoa deficits, and various climatic and disease-related challenges affecting the crops in West Africa.
In the world of commodities, cocoa prices have recently captured the market’s attention, settling with mixed results on Monday. Interestingly, these prices are now consolidating below the record highs seen just last Friday. This pricing behavior reflects a market responding to both supply pressures and demand fluctuations in global cocoa production.
Specifically, cocoa prices have surged over the past five weeks, largely attributed to the seasonal Harmattan winds. These intense, dusty trade winds native to West Africa are drying out cocoa fields and subsequently impacting the mid-crop in the Ivory Coast, the world’s largest cocoa producer. This environmental factor alone has exerted a bullish influence on prices.
Data from Monday indicates that cocoa shipments from the Ivory Coast to ports have fallen steeply by 38% compared to the same period last year, reaching just 1.08 million metric tons from October 1 to February 11. This stark decrease in production is a primary driver for the recent upticks in cocoa prices.
The situation is exacerbated by the halt in forward cocoa sales for the 2024/25 season by the Ivory Coast cocoa regulator, Le Conseil Cafe-Cacao. This decision reflects a cautious approach by the regulator, which seeks a more accurate forecast of cocoa production before committing to future sales contracts.
Moreover, production woes are not confined to the Ivory Coast alone. Adverse growing conditions and crop diseases have plagued West African cocoa farms over the past year, diminishing production and fueling the sharp rally in cocoa prices. Maxar Technologies reports that rainfall in West Africa has been more than double the 30-year average since the start of the rainy season on May 1, adding to the challenges faced by cocoa producers.
The bearish sentiment is further compounded by dwindling cocoa inventory levels in U.S. ports, as reported by ICE, and concerns about reduced production in Ghana, the second-largest cocoa-producing country. Ghana’s cocoa yields have suffered due to a scarcity of fertilizers and the prevalence of black pod disease, resulting in forecasts for a 13-year low in the 2022/23 cocoa crop.
On the demand side, record-high cocoa prices have begun to dampen global demand, as evidenced by reported decreases in cocoa grindings—a proxy for demand—in North America, Asia, and Europe.
While the International Cocoa Organization (ICCO) indicates a slight year-over-year increase in global cocoa production and grindings, the end-of-season stock-to-grinding ratio is at a seven-year low, suggesting tighter supplies ahead. Moreover, the ICCO estimates a global cocoa deficit for the 2022/23 season at 99,000 metric tons, underscoring the supply-demand imbalance that could continue to influence market prices.
In conclusion, while cocoa prices have retreated from their peaks, the combination of diminished production, harsh environmental conditions, and subdued demand paints a complex picture for the cocoa market. As the industry navigates these turbulent conditions, market participants will continue to watch closely, balancing the fragility of supply against the dynamics of global consumption.
What’s your take on this? Let’s know about your thoughts in the comments below!