Cocoa prices experienced a pullback from their 2-1/2 week low on Tuesday, attributed to increased supplies from Nigeria and a rise in rainfall.
Nigeria, the world’s fifth-largest cocoa producer, reported a 19% year-on-year increase in its March cocoa exports, reaching 22,199 metric tons.
Active cocoa contracts saw a significant drop of more than a fifth of their value over two days, settling at $7,500 a ton in the US after reaching record highs earlier this year.
The decline in cocoa prices coincided with rainfall in West Africa, easing concerns about significant crop reduction in the upcoming year.
Prices had surged to $11,800 per ton in mid-April due to supply shortages and reduced yields caused by unpredictable weather, tree diseases, and insufficient investment.
While Ghana, Ivory Coast, Nigeria, and Cameroon collectively produce 75% of the world’s cocoa, this year’s harvests may fall short. Official figures indicate a 30% decrease in Ivory Coast cocoa shipments to ports between October 1 and April 28 compared to last year. Ivory Coast’s 2023–24 cocoa production is projected to decline by 21.5% year-on-year to 1.75 million metric tons, an 8-year low, according to Ecom.
Challenges like unfavorable growing conditions and crop diseases in West African farms have constrained cocoa production and led to a surge in cocoa prices.
Cocoa Supplies Remain Tight
Recent market fundamentals suggest a global cocoa shortage through 2023–2024 due to inadequate current output to meet demand. The recent cocoa price volatility has made it costlier to hold cocoa futures positions due to increased margin requirements. This has compelled traders to close positions, reducing liquidity and making the market susceptible to significant price fluctuations.
The Hydrological Service Agency has warned about severe flooding in Nigeria’s primary cocoa-growing regions, disrupting planting and mid-crop harvests. Ninety-four percent of the country’s chocolate supply originates from regions prone to flooding, including Ondo, Cross River, Osun, Oyo, Ogun, Taraba, and Delta.
Tighter cocoa supplies also stem from concerns about the smaller two-yearly harvests in West Africa, known as the mid-crop. Projections for Ghana’s mid-crop have been revised downwards from an earlier estimate of 150,000 MT to 25,000 MT. Similarly, the Ivory Coast cocoa regulator anticipates a 33% decline in the mid-crop, from 600,000 MT to 400,000 MT, while Nigeria’s mid-crop estimates have dropped from 90,000 MT to 76,500 MT.
