Cocoa futures surged to unprecedented levels on Wednesday, with ICE NY cocoa hitting a new all-time high. The rally reflects mounting anxieties over dwindling global cocoa supplies, propelling prices to record territory. Investors grapple with the worst cocoa shortage in four decades, driving a fervent scramble for limited resources.
London cocoa joined the rally, buoyed by the weakening British pound, which reached a two-month low on Wednesday. The depreciation of the pound favors cocoa priced in sterling, further bolstering market sentiment.
The principal driver behind the surge in cocoa prices is the decline in production, notably in the Ivory Coast, the world’s largest cocoa producer. Government data released on Monday revealed a significant drop in cocoa shipments from Ivory Coast ports, down by 27.8% compared to the previous year. Forecasts from Ecom Agroindustrial project a substantial 21.5% year-on-year decrease in cocoa production in Ivory Coast for the 2023/24 season, reaching an eight-year low.
Ghana, another major cocoa producer, faces its own production challenges. The Cocoa Board (Cocobod) revised its cocoa harvest forecast downwards to half of its initial projection, marking a 22-year low due to adverse weather conditions and crop diseases.
Moreover, concerns loom over the West African mid-crop, exacerbating the strain on cocoa supplies. Projections for the Ghana mid-crop have been slashed, while Ivory Coast anticipates a substantial reduction in its mid-crop yield. Nigeria’s mid-crop estimates have also been revised downwards.
In addition to supply constraints, dwindling cocoa inventories in U.S. ports reached a three-year low, further tightening the market.
Despite these bullish indicators, recent government interventions in Ivory Coast and Ghana aimed at boosting farm-gate prices for cocoa producers have introduced some uncertainty. While these measures may encourage growers to release more beans into the market, temporarily alleviating supply tightness, their long-term impact remains to be seen.
Smaller cocoa exports from Nigeria contribute to the bullish outlook, with February exports declining by 18% year-on-year.
Forecasts from the International Cocoa Organization (ICCO) signal an impending global cocoa deficit, projected to widen significantly for the 2023/24 season. Unfavorable weather conditions and crop diseases in West Africa have hampered production, setting the stage for a prolonged deficit. The current El Nino weather event adds further support to cocoa prices, reminiscent of the 2016 drought-induced rally.
The decision by the Ivory Coast cocoa regulator to halt forward cocoa sales for the 2024/25 season adds to supply concerns, amplifying market uncertainties.
Despite the bullish market sentiment, record-high cocoa prices have started to dampen global demand. Reports from industry associations indicate a decline in cocoa grindings across North America, Asia, and Europe, reflecting a slowdown in consumption amidst soaring prices.
