September ICE NY cocoa (CCU24) today is down -113 (-1.39%), and September ICE London cocoa #7 (CAU24) is down -26 (-0.39%).
Cocoa prices today are moderately lower on concern that recent record-high cocoa prices will lead to demand destruction. The consensus is that Thursday's quarterly report from the European Cocoa Association will show European Q2 cocoa grinding fell -2% y/y to a 4-year low. Q2 Asian and North American cocoa grindings are also expected to decline when they are reported next week.
On Tuesday, NY cocoa posted a 2-week high on lower cocoa production in the Ivory Coast, the world's largest producer. Government data Monday showed that Ivory Coast farmers shipped 1.61 MMT of cocoa to ports from October 1 to July 7, down by -29% from the same time last year. Trader Ecom Agroindustrial projects Ivory Coast 2023/24 cocoa production, which ends in September, will fall -21.5% y/y to an 8-year low of 1.75 MMT.
Higher cocoa futures margins have forced traders to reduce their cocoa positions, which has led to thin trading conditions and high volatility. Aggregate open interest in cocoa futures is now near the lowest since 2010.
US cocoa supplies have tightened. ICE-monitored cocoa inventories held in US ports fell to a 3-1/2 year low Tuesday of 3,132,650 bags.
Improved weather conditions in West Africa should boost the region's cocoa yields and are negative for prices. Cocoa farmers in the Ivory Coast said they returned to their fields after heavy rains eased, and cocoa farmers in Ghana reported that recent rain has improved soil moisture levels and boosted cocoa pod production.
Demand concerns are a negative factor for cocoa prices. Chocolate producer Nestle SA predicted on June 19 that consumers would cut back on chocolate purchases as the recent historic rally in cocoa prices gradually trickles down to manufacturers and forces them to raise prices.
Another 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 425,00 MT in 2023/24 as improved weather conditions boost cocoa yields. Ghana's 2024/25 cocoa harvest begins in October.
Cocoa prices have underlying support from concern the global cocoa shortage will persist. 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. Also, on June 7, the Ivory Coast cocoa regulator, Le Conseil du Cafe-Cacao, told companies and exporters that don't have processing plants in the Ivory Coast that they can't buy cocoa beans from the Ivory Coast mid-crop until at least the end of this month.
Cocoa also has support from signs that global cocoa demand remains resilient despite record-high prices. On April 18, the National Confectioners Association reported that North American Q1 cocoa grindings rose +9.3% q/q and +3.7 % y/y to 113,683 MT. Also, on April 18, the Cocoa Association of Asia reported that Q1 Asia cocoa grindings rose +5.1% q/q, although they fell -0.2% y/y to 221,530 MT. In addition, the European Cocoa Association reported that Q1 European cocoa grindings rose +4.7% q/q, although they fell -2.2% y/y to 367,287 MT.
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. ICCO said, "Current available data reveal that cocoa grinding activities have so far been unrelenting in importing countries despite the record cocoa price rallies. As the 2023-24 season progresses, it is certain the season will end in a higher deficit than previously expected." ICCO raised its 2023-24 grindings estimate to 4.855 MMT from 4.779 MMT, representing a -4.3% y/y fall from 2022/23. ICOO raised its production projection from February by 12,000 MT to 4.461 MMT, representing a -11.7% y/y decline from 2022/23. 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.
