September ICE NY cocoa (CCU24) on Friday closed up +144 (+1.87%), and September ICE London cocoa #7 (CAU24) closed up +292 (+4.67%).
Cocoa prices Friday closed higher on tighter US cocoa supplies. ICE-monitored cocoa inventories held in US ports fell to a 3-1/2 year low Wednesday of 3,161,3717 bags. Also, Friday's slide in the dollar (DXY00) to a 3-week low supports most commodities, including cocoa. The price movement in cocoa remains highly volatile, and little news can move prices substantially. Large margin requirements have forced traders to reduce their cocoa positions, which leads to thin trading conditions and excessive volatility. Aggregate open interest in cocoa futures is now near the lowest since 2010.
Lower cocoa production in the Ivory Coast, the world's largest producer, is also a bullish price factor. Government data Monday showed that Ivory Coast farmers shipped 1.59 MMT of cocoa to ports from October 1 to June 30, 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.
On Monday, NY cocoa posted a 5-week low on an improved outlook for Ivory Coast cocoa production. Bloomberg reported last Friday that the Ivory Coast is projected to harvest 2 MMT of cocoa in the 2024/25 season that begins October 1, citing early pod counting from Ivory Coast cocoa farms, above the 2023/24 Ivory Coast cocoa production estimate of 1.8 MMT.
Demand concerns are also 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.
The concern that the global cocoa shortage will persist is a bullish factor in cocoa prices. 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%.
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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.
