Cocoa records poor performance amid bullish trend in agro-commodities market

Onome Amuge

insightful research and powerful analytics across global markets and While major agro-commodities in the global market  including coffee,sugar,soybeans are currently dancing to inflation tunes buoyed by a higher Consumer Price Index (CPI), cocoa has seemingly missed the beat and currently stands as the worst performing commodity, market watchers noted.

Despite being a major raw material for chocolates, baked goods, ice cream and other confectioneries, cocoa prices have fallen sharply over 8 per cent since the start of 2021 while higher year-on-year cocoa production levels were recorded in top producers, Côte d’Ivoire and Ghana.

According to the International Cocoa Organisation (ICCO)  in its recently released market report for April 2021, prices of the front-month cocoa futures contract on the London and New York markets plunged by four per cent and seven per cent respectively at the end of April 2021,  a worrisome result for investors of the commodity.

Commenting on cocoa’s price slump, Jack Scoville of Chicago’s Price Futures Group said cocoa’s problem began, like everything else, with the Covid-19 pandemic that reduced the global demand for chocolates and related treats despite steady production figures. He added that the supplies far outweighed demand  leading to the cocoa glut.

Some researchers assert that the situation is likely to get better for cocoa with the full imminent reopening of New York City that is expected to be followed by other major destinations and capitals of the world that readmit tourism and leisure—the two catalysts for the consumption of luxury items such as chocolates. However, no one is sure of how long it would be before those things make a meaningful difference to cocoa demand, and how high bean prices could go at that point.

Analysts at Trading Economics,a globally renowned economics indicator, said prices of cocoa which currently stands between $2,389 to $2,391 per tonne, is likely to drop to  $2,354.32 a tonne by the end of the second quarter.

“Looking forward, we estimate it to trade at $2,073.85 in 12 months time,” they said.

In its quarterly outlook, Dutch multinational food and agriculture financing company, Rabobank, is optimistic the downward curve of cocoa futures curve might not last as it could return to an inversion by the time the September contract becomes the front-month and weather conditions for the crop worsens.