Mon, July 22, 2024

Cocoa Futures Drop 11.2% in NY, 8.19% in London

Cocoa, cocoa bean

Quick Look:

  • Cocoa Price Drop: NY cocoa dropped by 11.20% and London cocoa by 8.19%, hitting new lows.
  • Higher Yields: Favorable weather in major cocoa-producing regions boosted production, affecting market supply.
  • Consumer Cutbacks: Rising chocolate prices lead consumers to buy less, reducing demand and impacting prices.
  • Production Forecasts: Ghana’s 2024/25 cocoa production forecast increased, while Ivory Coast anticipates a decline.

The cocoa market has experienced significant turbulence, with New York and London markets recording sharp declines. The September ICE NY cocoa (CCU24) saw a drastic fall of 997 points, equivalent to an 11.20% drop. Similarly, the July ICE London cocoa #7 (CAN24) decreased by 681 points, marking an 8.19% reduction. This dramatic sell-off has resulted in New York hitting a one-month low and London cacao bean reaching a two-and-a-half-week low.

NY Cocoa Drops 997 Points, London Falls 681 Points

Several key events and factors have contributed to the current state of the cacao bean market. Favourable weather conditions in the major cacao bean-producing regions of Ivory Coast and Ghana have increased cocoa production. This surge in output has prompted substantial selling in cocoa futures as traders anticipate a more abundant supply. The beneficial growing weather has provided ideal conditions for the cacao crops, leading to higher yields and thus influencing market dynamics significantly.

Additionally, the market has been impacted by consumer behaviour trends. Nestlé SA recently predicted that rising prices are causing consumers to cut back on chocolate purchases. This forecast, made on 19 June 2024, suggests that higher costs lead to decreased demand, adding further pressure on cocoa prices. The reduction in consumer purchases of chocolate, driven by price sensitivity, creates a ripple effect across the market, contributing to the decline in cocoa futures.

Ghana Forecasts 700,000 Metric Tons, Up from 425,000

Ghana’s cocoa production forecast also plays a crucial role in the market dynamics. The country’s cocoa regulator has projected a significant increase in production for the 2024/25 season, expecting 700,000 metric tons compared to the previous season’s 425,000 metric tons. Improved weather conditions favourable for cocoa cultivation lead to this optimistic forecast. The anticipated boost in production, set to begin in October 2024, is shaping market expectations and influencing current trading behaviours.

Ghana has also been considering delaying the delivery of up to 350,000 metric tons of cocoa to the next season, as reported on 12 June 2024. This potential delay is aimed at managing supply and stabilising the market. Furthermore, the Ivory Coast cocoa regulator has imposed a restriction, effective 7 June 2024, preventing companies without local processing plants from purchasing cocoa beans from the mid-crop until the end of June. This measure ensures sufficient stock for local processors and significantly impacts international buyers and traders.

Global Cocoa Deficit Hits 439,000 Metric Tons

The International Cocoa Organization (ICCO) estimated a substantial global cocoa deficit of 439,000 metric tons for the 2023/24 season, a sharp increase from the February estimate of 374,000 metric tons and the previous season’s deficit of 74,000 metric tons. The ICCO also reported that global grindings are estimated at 4.855 million metric tons. In comparison, they projected production at 4.461 million metric tons, with the stocks-to-grindings ratio reaching a 46-year low of 27.4%. These figures highlight the tightness in the cocoa market and underscore the challenges faced by the industry.

ICE-monitored cocoa inventories in US ports hit a three-and-a-third-year low on 21 June 2024, with only 3,336,913 bags available. This reduction in inventory levels further exacerbates the supply concerns in the market. Reports on Q1 cocoa grindings indicated a mixed performance, with North American grindings up by 9.3% quarter-on-quarter and 3.7% year-on-year, while Asian grindings rose by 5.1% quarter-on-quarter but fell by 0.2% year-on-year. European grindings increased by 4.7% quarter-on-quarter but decreased by 2.2% year-on-year, reflecting regional variations in processing activities.

Ghana’s Cocoa Harvest Drops to 425,000 Metric Tons

Ghana’s 2023/24 harvest projection, announced on 25 March 2024, estimated a total of 422,500 to 425,000 metric tons, significantly lower than the initial forecast due to extreme weather and disease affecting the crops. This downward revision in production expectations adds to the market supply’s uncertainty. Concerns about the West African mid-crop have also surfaced, with Ghana’s mid-crop forecast dropping to 25,000 metric tons from the initial 150,000 metric tons, Ivory Coast’s mid-crop expected to be 400,000 metric tons from 600,000 metric tons, and Nigeria’s mid-crop projected at 76,500 metric tons from 90,000 metric tons.

The Ivory Coast has also rolled 150,000 tons of oversold contracts into the mid-crop, while Ghana struggles with forward sales due to an uncertain crop outlook, rolling forward 350,000 tons and securing only 100,000 tons for the 2024/25 season. Ghana’s regular cocoa sales typically account for 80% of the crop one year forward. Therefore amounting to 750,000-850,000 tons. Still, the current crop is not expected to exceed 500,000 tons, highlighting the country’s significant production challenges.

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