September ICE NY cocoa (CCU24) today is up +369 (+4.91%), and September ICE London cocoa #7 (CAU24) is up +260 (+4.32%).
Cocoa prices today recovered from 1-month lows and are sharply higher. Short-covering emerged today to push cocoa prices higher on lower cocoa production in the Ivory Coast, the world's largest producer. Government data today showed that Ivory Coast farmers shipped 1.66 MMT of cocoa to ports from October 1 to August 4, down by -28% from the same time last year.
Cocoa prices today initially fell to 1-month lows on global cocoa demand concerns after Hershey, the world's fourth-largest chocolate producer, reported a quarterly sales drop and cut its full-year outlook last Thursday due to weakening consumer demand for chocolate.
Cocoa is also under pressure due to an improving outlook for the next cocoa season in West Africa. The end of the El Nino weather pattern and a potential shift to a La Nina pattern is set to boost precipitation in the Ivory Coast and Ghana, boosting soil moisture levels and increasing cocoa yields.
An increase in cocoa exports from Nigeria, the world's fifth largest cocoa producer, is negative for prices. According to a document seen by Bloomberg last Monday, Nigeria's Jun cocoa exports rose +18% y/y to 14.465 MT.
Cocoa has support on concern that increasing rains in West Africa are leaving cocoa plantations more susceptible to disease and forcing farmers to acquire chemicals to protect them. The high cost of chemicals is slowing down crop spraying and allowing Black Pod disease to resurface.
Tighter US cocoa supplies are also supportive of prices. ICE-monitored cocoa inventories held in US ports fell to a 3-1/2 year low last Friday of 2,908,055 bags.
A bearish factor for cocoa prices was the projection from Ghana's cocoa regulator on June 13 that Ghana's 2024/25 cocoa production will rebound to 700,000 MT from 425,000 MT in 2023/24 as improved weather conditions boost cocoa yields. Ghana's 2024/25 cocoa harvest begins in October.
Trader Ecom Agroindustrial projects Ivory Coast cocoa production in the 2023/24 marketing year, which ends in September, will fall -21.5% y/y to an 8-year low of 1.75 MMT.
Cocoa prices have been supported by better-than-expected cocoa demand. The National Confectioners Association reported on July 18 that North America Q2 cocoa grindings rose +2.2% y/y to 104,781 MT, stronger than estimates for a slight decline. Also, the Cocoa Association of Asia reported on July 18 that Asian Q2 cocoa grindings fell -1.4% y/y to 210,958 MT, a smaller decline than expectations of -2.0% y/y. The European Cocoa Association reported on July 11 that Q2 European cocoa grindings unexpectedly rose +4.1% y/y to 357,502 MT, versus expectations of a -2% y/y decline.
Cocoa prices have underlying support from concern about the availability of cocoa beans for buyers. Reuters reported on June 12 that Ghana is considering delaying the delivery of up to 350,000 MT of cocoa beans to next season due to the country's poor crops. Ghana is the world's second-largest cocoa producer. Meanwhile, the Ivory Coast cocoa regulator, Le Conseil du Cafe-Cacao, announced on June 7 that companies that do not have processing plants in the Ivory Coast cannot buy cocoa beans from the Ivory Coast mid-crop until at least the end of July. The Ivory Coast cocoa regulator on July 11 at least allowed forward sales to resume for the 2024/25 cocoa crop to buyers with domestic processing plants.
Cocoa prices have been supported by concerns about the West African mid-crop, which is the smaller of two annual harvests. Projections for the Ghana mid-crop, which starts in July, have been cut to 25,000 MT compared with an earlier forecast of 150,000 MT. Also, the Ivory Coast cocoa regulator said on March 7 that it expects the Ivory Coast mid-crop, which officially starts in April, to fall -33% to 400,000 MT from 600,000 MT last year. In addition, projections for Nigeria's mid-crop have been reduced to 76,500 MT from an earlier estimate of 90,000 MT. Ghana's Cocoa Board (Cocobod) said on March 25 that Ghana's 2023/24 cocoa harvest would be only 422,500 MMT to 425,000 MT, half the country's initial forecast and a 22-year low, as extreme weather and disease decimated the cocoa crop.
In a bullish factor, the International Cocoa Association (ICCO) on May 31 projected a 439,000 MT cocoa deficit for 2023/24, 17% larger than its February estimate of 374,000 MT and far larger than the 74,000 MT deficit in 2022/23. ICOO projects that 2023/24 cocoa production will fall -11.7% y/y to 4.461 MMT. In addition, ICCO projects a 2023/24 global cocoa stocks/grindings ratio of a 46-year low of 27.4%.
On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
