March ICE NY cocoa (CCH25) today is down -71 (-0.70%), and March ICE London cocoa #7 (CAH25) is down -69 (-0.862%).
Cocoa prices today added to this week’s losses and fell to 2-month lows. Cocoa prices are under pressure this week on signs of slowing cocoa demand. Chocolate maker Hershey said Thursday that high cocoa prices are forcing the company to reformulate recipes by replacing cocoa with other ingredients. On Tuesday, major chocolate maker Mondelez International pointed to a potential slowdown in chocolate demand when CFO Zarmella said, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.”
Beneficial rain in West Africa has improved cocoa tree development and is weighing on cocoa prices. Farmers in the Ivory Coast and Ghana report that recent rain has benefited their crops and led to the re-flowering of cocoa trees.
Concern about slowing Ivory Coast cocoa exports is a supportive factor for cocoa prices. While government data Monday showed Ivory Coast farmers shipped 1.29 MMT of cocoa to ports so far this marketing year, up more than +22% from last year, the pace has narrowed from the 35% rise seen in December.
West African cocoa crop production concerns are bullish for prices. Forecaster Maxar Technologies said this year’s seasonal Harmattan winds are the driest in six years, worsening crop conditions. Some Ivory Coast and Ghana cocoa farmers have reported that cocoa trees are beginning to suffer the effects of the seasonal dry and dusty Harmattan winds, with leaves turning yellow and the cherelles (cocoa pods) withering.
Concern that the global cocoa deficit could widen is bullish for prices. On January 24, the International Cocoa Organization (ICCO) said a survey of global cocoa stockpiles at the end of the 2023/24 season was at 1.041 MMT, down -36% y/y and lower than a previous estimate of 1.300 MMT. The survey signals that the ICO’s 2023/24 global cocoa deficit estimate of -478,000 MT may be even more significant than initially projected.
Tight global cocoa inventories are also bullish for prices. ICE-monitored cocoa inventories held in US ports have been trending lower for the past 1-1/2 years and, on January 24, fell to a 21-year low of 1,263,493 bags.
Cocoa also has support after chocolate maker Hershey Co. recently said it sought CFTC approval to buy a large amount of cocoa through the ICE Futures Exchange due to tight global supplies. Bloomberg reported that Hershey wants to take a position allowing it to purchase more than 90,000 MT of cocoa on ICE Futures US. The purchase size is more than nine times what the exchange currently allows. The amount also exceeds a federal position limit of 4,900 contracts, or 49,000 MT, set by the CFTC. Global cocoa shortages are so significant that it is now cheaper to take delivery of supplies through the New York exchange than buying in the physical market.
On December 18, NY Cocoa posted an all-time nearest-futures high, and London Cocoa posted a 9-month nearest-futures high on the deterioration of the West African cocoa mid-crop outlook. Maxar Technologies warned that dry conditions in West Africa will hurt the early development of the mid-year cocoa crop harvested in April and that the arrival of the seasonal Harmattan winds could worsen the situation.
In a bullish factor, the International Cocoa Association (ICCO) on November 22 raised its 2023/24 global cocoa deficit estimate to -478,000 MT from May’s -462,000 MT, the largest deficit in over 60 years. ICCO also cut its 2023/24 cocoa production estimate to 4.380 MMT from May’s 4.461 MMT, down -13.1% y/y. ICCO projected a 2023/24 global cocoa stocks/grindings ratio of 27.0%, a 46-year low.
A bearish factor for cocoa is the concern that high prices are causing demand destruction for cocoa. On January 9, the European Cocoa Association reported that Q4 European cocoa grindings fell -5.3% y/y to 331,853 MT, the lowest in more than 4 years. Also, the Cocoa Association of Asia reported that Q4 Asian cocoa grindings fell -0.5% y/y to 210,111 MT, also the lowest in 4 years. In addition, the National Confectioners Association reported that Q4 North American cocoa bean grindings fell -1.2% y/y to 102,761 MT.
Stronger cocoa exports from Nigeria, the world’s sixth-largest producer, are also bearish for prices. Nigeria’s Dec cocoa exports rose +87% y/y to 46,696 MT.
On the negative side, the Ivory Coast regulator Le Conseil Cafe-Cacao on October 18 raised its Ivory Coast 2024/25 cocoa production estimate to a range of 2.1-2.2 MMT from a June forecast of 2.0 MMT.
Cocoa found support after Ghana’s Cocoa Board (Cocobod) on August 20 cut its 2024/25 Ghana cocoa production estimate to 650,000 MT from a June forecast of 700,000 MT. Due to bad weather and crop disease, Ghana’s 2023/24 coca harvest sank to a 23-year low of 425,000 MT. Ghana is the world’s second-biggest cocoa producer.
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