September ICE NY cocoa (CCU24) on Tuesday closed down -72 (-0.91%), and July ICE London cocoa #7 (CAN24) closed up +138 (+1.80%).
Cocoa prices Tuesday settled mixed, with NY cocoa posting a 1-month low. Cocoa prices are being undercut by reports of beneficial growing weather in the Ivory Coast and Ghana that should boost cocoa production. Tuesday's weakness in the British pound (^GBPUSD) supported London cocoa prices. A weaker pound boosts cocoa that is priced in terms of sterling.
Demand concerns are a negative factor for cocoa prices. Last Wednesday, chocolate producer Nestle SA predicted 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.
Lower cocoa production in the Ivory Coast, the world's largest producer, is a bullish price factor. Government data Monday showed that Ivory Coast farmers shipped 1.57 MMT of cocoa to ports from October 1 to June 23, 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.
Cocoa prices are supported by concerns that 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 prices also have carryover support from May 31, when the ICCO estimated a 439,000 MT cocoa deficit for 2023/24, 17% higher than its February estimate of 374,000 MT and nearly six times 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%.
Another bullish factor for cocoa is dwindling inventories, as ICE-monitored cocoa inventories held in US ports fell to a 3-1/3 year low of 3,286,555 bags Tuesday.
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.
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.
Concerns about the West African mid-crop, the smaller of two annual harvests, are leading to tightness in cocoa supplies. 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.
Over the past year, unfavorable growing conditions and crop disease on West African farms have curbed cocoa production. A global cocoa deficit is expected to extend into 2023/24 since current production is insufficient to meet demand. Also, cocoa prices are seeing support from the current El Nino weather event after an El Nino event in 2016 caused a drought that fueled a rally in cocoa prices to a 12-year high.
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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.