Cocoa Market Crisis: Prices Volatile Amid Shortages

Quick Look::

• London cocoa futures dropped after reaching record highs due to severe supply shortages.
• Ghana postponed cocoa delivery, and the Ivory Coast stopped forward sales, escalating market anxieties.
• Ivory Coast and Ghana saw significant drops in cocoa production, tightening global supplies.
• Early grinding reports show declines across major regions, reflecting high prices and inventory strategies.
• Experts express concerns about unsustainable prices and potential market collapse due to tight supplies.

London cocoa futures plummeted from new record highs earlier this year as market dynamics shifted dramatically due to supply concerns. Meanwhile, global cocoa prices rallied to all-time highs. The worst supply shortage in 40 years caused the prices to drop towards the end of the year.

In a significant development, the Ghana Cocoa Board announced its decision to postpone delivering 150,000 to 250,000 metric tons of cocoa until the next season, exacerbating market anxieties. Ivory Coast and Ghana have taken bold steps to increase farm-gate prices by 50% and 58%, aiming to stabilize farmer incomes amidst the supply chaos. Furthermore, the Ivory Coast escalated the situation by halting sales for the 2024/25 season, signalling a pessimistic outlook on supply availability.

Cocoa Production Hits Eight-Year Low

Production figures from Ivory Coast, the world’s largest cocoa producer, reveal a worrying trend with a current shipment total of 1.31 million metric tons. These numbers are down by 30% year-on-year, and projections indicate a 21.5% fall year-on-year to an eight-year low. In Ghana, current harvests are significantly below expectations, achieving only half the forecasted amount.

Mid-crop projections across West Africa, including major producers like Nigeria, have been dramatically revised downwards, signalling tight supplies moving forward.

Upcoming grinding reports from Asia, Europe, and North America are eagerly anticipated. However, early figures indicate a decline in cocoa grinding—an essential process for cocoa processing—with North American, Asian, and European grindings falling by 3.0%, 8.5%, and 2.5% year-on-year, respectively. This decline reflects high prices and possibly a strategic rundown of grinders’ inventories.

US Cocoa Stocks at 3-Year Low Amid Global Deficit

The US has seen its cocoa inventories fall to a three-year low. A global deficit for the 2023/24 season is expected to widen significantly, exacerbated by an 11% drop in production and nearly a 5% reduction in grindings. The stock-to-grinding ratio is now at its lowest point over four decades, indicating severe supply tightness.

Navigating the Turbulent Market Landscape

The impact on global supply chains and price stability remains uncertain as the cocoa market continues navigating through disruptions and governmental interventions. With record-high prices triggering concerns over demand destruction, the industry faces a precarious balancing act in maintaining supply while managing escalating market volatility.