Volatile Cocoa prices see a surge in panic buying by chocolate industry

The ICCO (International Cocoa Organisation) said in its April 2024 Cocoa Market Review: “While price volatility has been further amplified by the reduced market liquidity, the most important driver is the great uncertainty about the next crop year.

“In the absence of reliable statistics on areas under cultivation, tree ages, and yields, and the state of the spread of Cocoa Swollen Shoot Virus Diseases (CSSVD) in Côte d’Ivoire and Ghana, it is necessary to wait for the completion of pod-counting surveys, expected between the end of August and mid- September, to have an initial estimate of the projected market balance for the 2024-25 year."

Cocoa grindings data

Meanwhile, grindings data published by regional associations for Q1.2024 depict that demand does not seem to neutralize the deficit.

Whereas Europe’s Q1.2024 cocoa grindings, as reported by the European Cocoa Association (ECA), fell by 2.2% from a year earlier to 367,287 tonnes, that of North America published by the National Confectioners Association (NCA), rose by 3.6% year-on-year to 113,683 tonnes.

Data from the Cocoa Association of Asia (CAA) also revealed a slight drop of 0.2% year-on-year to 221,530 tonnes.

“Some analysts are of the view that the increase in North American grindings may be due to panic buying in the chocolate industry as chocolate makers are buying as much as they can before a shortage in supplies occurs,” the ICCO claimed.

“Also, due to the forward contracting strategy, manufacturers may currently be covered, and processing may not see an immediate significant decline for the rest of the season."

In its latest Bulletin, barchart.com reported that July ICE NY cocoa (CCN24) closed up +529 (+6.03%) on Wednesday (29 May), and July ICE London cocoa #7 (CAN24) closed up +464 (+6.55%).

Cocoa prices rallied sharply for a second day, with NY cocoa posting a 3-week high and London cocoa posting a 2-week high. Confirming the ICCO’s outlook, it said inadequate rain in West Africa is causing an uncertain position for cocoa production in the region and is boosting prices.

Price rally

Investment analyst Rich Asplund said cocoa prices saw an extraordinary rally earlier this year to all-time highs on 19 April due to supply concerns.

“Global cocoa grinders paid up in the cash market to secure supplies due to growing concerns that West African cocoa suppliers may default on supply contracts.  Bloomberg reported on 11 April that the Ghana Cocoa Board is negotiating with major cocoa traders to postpone the delivery of at least 150,000 MT to 250,000 MT of cocoa until next season due to a lack of beans.  Cocoa prices have rallied sharply since the beginning of the year, driven by the worst supply shortage in 40 years.”

The ICCO said prices are expected to remain high throughout the 2023-24 mid-crop, supported by the current market fundamentals.

“Indeed, the Conseil du Café-Cacao (CCC) has announced that it expects a 33% year-on-year reduction in the size of the mid-crop from about 400,000 tonnes to 600,000 tonnes.”

Asplund said this is a major bullish factor for cocoa prices.  “Another bullish factor for cocoa is dwindling inventories, as ICE-monitored cocoa inventories held in US ports fell to a 3-year low of 3,667,530 bags Wednesday."

He also pointed out that since posting 2-3/4 month lows last Monday, cocoa prices have risen sharply after the Hightower Report warned that West African cocoa farmers' lack of fertilizer and pesticide will hurt cocoa production during the 2024-25 season.

“Unfavorable growing conditions and crop disease on West African farms over the past year have curbed cocoa production and fueled a parabolic rally in cocoa prices,” said Asplund.

“A global cocoa deficit is expected to extend into 2023-24 since current production is insufficient to meet demand.  Also, cocoa prices are seeing support from the current El Nino weather event after an El Nino event in 2016 caused a drought that fuelled a rally in cocoa prices to a 12-year high.”