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Persistent supply constraints keep cocoa prices elevated

Commodities
Ole Hansen
Ole Hansen

Head of Commodity Strategy

Cocoa prices have surged significantly in 2024, fueled by supply shortages primarily due to adverse weather and crop diseases in West Africa, rising demand, and market volatility triggering panic buying. After hitting a record high above USD 12,000 in April—nearly five times the long-term average—the New York futures contract entered a consolidation phase, finding support around the USD 6,000 level before rallying 17% this month to USD 7,600.

In April, the International Cocoa Organization (ICCO) raised its cocoa deficit estimate for the 2023/24 season to approximately 439,000 tons, driven by a sharp production decline in Ivory Coast and Ghana due to adverse weather, poor farmgate prices, and the spread of Cocoa Swollen Shoot Virus Disease (CSSVD).

The recent price surge has been fueled by prolonged supply concerns after the Ghana Cocoa Board reduced its 2024/25 harvest outlook by 20%, citing ongoing weather challenges. The main cocoa harvest in West Africa typically runs from October to March, with a smaller mid-crop harvest from April to September.

The extreme volatility over the past six months has sharply reduced trading activity and positioning, with open interest in New York futures markets down to around 133,000 contracts from an average of about 300,000 in prior years. Lower participation reduces the market's ability to absorb sudden bursts of activity, leading to exaggerated reactions, exacerbated by an uncertain supply outlook.

22olh_cc
Source: Saxo

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