Cocoa hits 46-year high as supply tightness boosts prices

By Onome Amuge.

Cocoa futures soared to a 46-year high on the Intercontinental Exchange (ICE) and the prospect of a third successive global deficit in the 2023/24 season that begins in October lent support to an already bullish market.

At the close of trading activities in the week, December London cocoa settled 54 pounds, or 2.0 per cent higher at 2,796 pounds per tonne, its highest valuation in 46-years.

December New York cocoa also witnessed a significant increase as it gained $31 or 0.9 per cent higher at $3,466 a metric tonne.

Traders said tightness in current cocoa supplies is supportive for prices after ICE monitored cocoa inventories held in U.S. ports have steadily declined over the past three months to a 5-month low .

Concern about lower cocoa production in Ghana, the world’s second-largest producer, is also a positive development for cocoa prices following reports that cocoa farmers would be unlikely to fulfill some of its cocoa contracts for a second season.  The country was forced to postpone 44,000 metric tonnes of cocoa shipments to future seasons due to a lack of supplies.  Ghana’s 2022/23 cocoa crop is now expected at around 650,000 MT, a 13-year low and 24 per cent below initial estimates of 850,000 MT, as a lack of fertilizers and black pod disease hurt cocoa yields, analysts observed.

According to reports, cocoa prices have rallied over the past three months due to the recent heavy rain in West Africa that has accelerated the spread of black pod disease, which causes cocoa pods to turn black and rot.  The spread of the disease from the extreme wet weather has been projected to result in lower cocoa crop quality and production and push the global cocoa market into a third year of deficit for the 2023/24 season.

Reduced cocoa supplies from the Ivory Coast, the world’s largest cocoa producer are bullish for prices after Ivory Coast farmers shipped 2.33 million metric tonnes of cocoa from October 1-August 20, down 2.9 per cent  year-on-year.

Smaller cocoa supplies from Nigeria are bullish for cocoa prices after the third largest African producer’s June cocoa exports fell 8.5 per cent year-on-year  to 12,245 tonnes.

Market data shows that the continuous  surge in cocoa prices is beginning to curb demand.  This is as the National Confectioners Association reported that North American cocoa processing in the second quarter slumped 12 per cent year-on-year to 102,493 metric tonnes, the lowest for a Q2 in 15 years.

Also, the Cocoa Association of Asia reported that Asia Q2 cocoa grindings reduced by 6.5 per cent year-on-year to 213,977 metric tonnes.  Similarly, the European Cocoa Association reported that European Q2 cocoa processing fell 5.7 per cent to a 2-year low of 343,283 metric tonnes.

Chocolate producers also felt the heat as Barry Callebaut, the world’s biggest chocolate maker, reported that its sales volume fell 2.7 per cent in the first nine months of the fiscal year ending May 31 as higher prices hurt sales.

The International Cocoa Organization (ICCO), in its latest cocoa market report, predicts a global cocoa deficit for 2022/23 of 146,000 tons.  The ICCO explained that expectation of a supply deficit has been compounded with weather variations, especially in the West African region where global cocoa production is concentrated.