The Cocoa market is facing a supply deficit of 374kt for 2023/24 due to falling production. According to the International Cocoa Organization (ICCO), production is expected to decrease by 11% to 4.5mt in 2023/24 due to lower output from major producing countries, including the Ivory Coast and Ghana. This decrease in production could push inventories further down and create shortages.
The falling cocoa production in Ivory Coast, the largest producer, and Nigeria, the fifth largest producer, is likely to push up the price of cocoa. The Ivory Coast farmers have shipped 1.16 MMT of cocoa to ports from October 1 to February 25, down -32% from the same time last year. Nigeria’s Jan cocoa exports also fell -15% y/y to 36,941 MT.
The Ghana Cocoa Board has cut its 2023/24 production estimate to a 14-year low of 650,000-700,000 MT from a previous forecast of 850,000 MT, citing smuggling and unfavorable weather. Ghana is the world’s second-largest cocoa producer. Some of its cocoa farmers are unlikely to fulfill some of their cocoa contracts for a second season.
Unfavorable growing conditions and crop diseases on West African farms over the past year have curbed cocoa production and fueled a scorching rally in cocoa prices. According to Maxar Technologies, the total precipitation in West Africa since the rainy season started May 1 has been more than double the 30-year average. The intense seasonal Harmattan winds and insufficient rain in West Africa are drying out cocoa fields and causing damage to the Ivory Coast mid-crop.
The total grindings are expected to decline by almost 5% for the 2023/24 season, pushing the stock-to-grindings ratio to the lowest in more than four decades. The projections are subject to risks arising from weather conditions and crop diseases. ICE Cocoa futures are up almost 45% this year amid expectations for global supply shortages primarily due to unfavorable weather conditions.
ICE-monitored cocoa inventories held in U.S. ports fell to a 2-3/4 year low of 4,100,035 bags on January 12. However, inventories have recently recovered and climbed to a 2-1/4 month high last Wednesday.
Record-high cocoa prices are starting to curb global demand. North American cocoa grindings fell -3.0% y/y to 103,971 MT, Asian Q4 cocoa grindings fell -8.5% y/y to 211,202 MT and European Q4 cocoa grindings fell -2.5% y/y to 350,739 MT. The concern that an El Nino weather event could undercut global cocoa production is also supporting cocoa prices.
Cocoa Long (Buy)
Enter At: 6384
T.P_1: 6454
T.P_2: 6505
T.P_3: 6568
T.P_4: 6652
T.P_5: 6715
T.P_6: 6798
T.P_7: 6862
T.P_8: 6948
T.P_9: 7057
T.P_10: 7204
S.L: 5823
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