Cocoa futures soar to all-time highs amid supply concerns

Onome Amuge

London cocoa futures hit a 100-year high on the Intercontinental Exchange (ICE) despite disappointing data on demand for cocoa in North America, signalling strong demand for cocoa globally.

Market data shows that while North America’s demand has been weaker than expected, other regions such as Asia and Europe have been seeing strong demand for cocoa. This is attributed to a variety of factors, including increasing demand for chocolate and other cocoa-based products, as well as higher disposable incomes in some regions.

March London cocoa futures hit a peak of 3,230 pounds per metric tonne, the highest price since the 1920s. The contract gained six per cent in the week, reflecting strong global demand for cocoa.

December New York cocoa also traded in bullish territory, rising $46, or 1.3 per cent, to $3,694 a tonne.

Despite a decline in cocoa processing in North America during the third quarter, industry analysts believe that there is still strong demand for cocoa in the region overall. Dealers attributed the decline in processing to factors such as supply disruptions and unfavorable weather conditions. However, they noted that despite this, industry demand remains strong, and a third consecutive year of supply deficit is expected. This is due to factors such as increased consumption and lower production in some major producing regions.

While the fall in Asian demand was steeper than expected, demand for cocoa remained strong in Europe, Côte d’Ivoire and Brazil. Despite high prices, these markets continue to see robust demand, driven by factors such as population growth, urbanisation and increased disposable income.

Meanwhile, a recent report from the International Coffee Organisation (ICCO), found that the cocoa market faced a deficit of 100,000 tonnes during the 2022/23 season, contrary to previous expectations of a balanced market. This was due to adverse weather conditions in the major producing countries, Côte d’Ivoire and Ghana. The report highlights the sensitivity of the cocoa market to external factors such as weather, which can have a significant impact on supply and demand.

According to the report, cocoa prices rose to their highest level in real terms during the 2022/23 season, as a result of lower-than-expected supply and concerns about an upcoming El Niño weather event. These factors, along with increased demand, pushed prices higher and created a rally in the market.

the report suggests that hoarding of cocoa beans by producers in Côte d’Ivoire and Ghana was one of the factors that led to a disrupted market during the 2022/23 season. In addition, in anticipation of higher prices in the 2023/24 season, Ghana moved up the start of the season from October 2023 to September 2023.

While the cocoa futures market experienced a backwardation in September, indicating that prices for cocoa beans were expected to decline in the future, the ICCO report said the market is still in a period of uncertainty. It noted that the true impact of the expected increase in supply and the change in the start of the season remains to be seen, adding that it is too early to determine the full extent of the effects on the cocoa market in the 2023/24 season.