Cocoa prices took another hit today, continuing a downward trend that started last week. As of today, March ICE NY cocoa (CCH25) fell by $190, or 1.59%, while March ICE London cocoa #7 (CAH25) dropped by £72, or 0.76%.
This marks the continuation of a sharp decline observed on Thursday and Friday, following the record-setting highs for both New York and London cocoa futures earlier this month. Last Wednesday, New York cocoa hit an all-time high for nearest-futures, while London cocoa reached an eight-month peak. The drop is largely attributed to long liquidation pressure, where investors are selling off their positions after the price surge.
Strong Cocoa Shipments from Ivory Coast Weigh on Prices
Cocoa prices have also been pressured by news of robust cocoa shipments from the Ivory Coast, the world’s largest producer. According to government data released on Monday, farmers in the Ivory Coast exported 970,945 metric tons of cocoa between October 1 and December 15, a 30% increase compared to the same period last year when shipments totaled 744,967 metric tons. This surge in supply has added downward pressure on the market.
Earlier in the season, cocoa prices had rallied due to concerns over the West African mid-crop. A forecast by Maxar Technologies warned that dry conditions in the region were likely to damage the early development of the mid-year cocoa crop, which is harvested in April. The onset of seasonal Harmattan winds further exacerbated concerns over crop yield.
Mixed Supply and Demand Signals for Cocoa
On the bullish side, there have been several supply-side concerns. In Ghana, the second-largest cocoa producer, the government reduced its 2024/25 harvest forecast by 5% last Friday due to adverse weather, marking the second downward revision for the season. Additionally, shrinking global cocoa stockpiles have provided some support. ICE-monitored inventories of cocoa in US ports have been declining steadily over the past 18 months and recently hit a 20-year low of 1.39 million bags.
Adding to the bullish sentiment, the International Cocoa Organization (ICCO) in late November revised its 2023/24 global cocoa deficit estimate upwards to 478,000 metric tons, up from 462,000 metric tons in May. This would mark the largest deficit in over six decades. ICCO also downgraded its global cocoa production estimate to 4.38 million metric tons, reflecting a 13.1% year-over-year decline.
However, the market has also been affected by weather-related challenges in West Africa. Heavy rainfall has caused cocoa bud mortality and flooded fields in the Ivory Coast, increasing disease risks and negatively impacting crop quality. Recent batches of cocoa beans from the region show signs of lower quality, with bean counts of about 105 per 100 grams. The Ivory Coast’s cocoa regulator permits exporters to buy beans with counts ranging from 80 to 100 per 100 grams, but beans with lower counts are considered of higher quality.
Strengthening Exports from Nigeria and Mixed Global Demand
On the bearish side, Nigeria, the world’s sixth-largest cocoa producer, has reported a 15% year-over-year increase in cocoa exports for October, totaling 20,508 metric tons. This rise in exports has weighed on global prices, as it adds more supply to an already well-stocked market.
Additionally, there was some mixed news regarding global cocoa demand. The National Confectioners Association reported a 12% year-over-year increase in North American cocoa grindings for the third quarter, totaling 109,264 metric tons. Similarly, the Cocoa Association of Asia reported a modest 2.6% increase in Asian grindings to 216,998 metric tons. However, the European Cocoa Association reported a 3.3% year-over-year decline in European cocoa grindings, which fell to 354,335 metric tons in the same period.
Outlook
Cocoa prices have also been supported by previous production forecasts. In August, Ghana’s Cocoa Board (Cocobod) revised its 2024/25 cocoa production estimate down to 650,000 metric tons from 700,000 metric tons due to poor weather and crop diseases. The country’s 2023/24 harvest has fallen to a 23-year low of 425,000 metric tons.
Overall, cocoa prices remain under pressure from strong supply-side data, particularly from the Ivory Coast and Nigeria, as well as mixed demand signals globally. However, ongoing concerns about crop quality, weather patterns, and shrinking stockpiles continue to provide some support for prices moving forward.
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