Cocoa hits record $10,760/tonne amid supply issues

Quick look:

• Cocoa futures hit a record high of $10,760 a tonne due to supply issues in West Africa.
• Ivory Coast halted forward sales, increasing market uncertainty;
• A potential rise to $12,500 a ton is seen amid trade volatility;
• Falling global demand could relieve some pressure on supply chains.

The cocoa market has entered a phase of volatility and unprecedented price increases, reaching new highs amid significant challenges in supply and demand dynamics. As futures in New York reach record highs, the global chocolate industry is bracing for the impact, with possible long-term consequences for both producers and consumers.

A rise in prices amid supply disruptions

Cocoa futures have soared to an all-time high. Prices reached $10,760 a ton in New York, a notable increase for the seventh consecutive day. This increase is mainly due to adverse conditions in the West African region, particularly in Côte d'Ivoire, the world's largest cocoa producer. The region has faced a number of challenges, including bad weather and rampant crop diseases. It has seriously affected the harvest. As a result, cocoa arrivals at Ivory Coast ports have plummeted by 30% compared to last year. This highlights a significant shortfall in supply.

This restriction on global cocoa supply is further exacerbated by Ivory Coast's cocoa regulator, Le Conseil Café-Cacao. It will pause future sales for the 2024/25 season until a clearer assessment of agricultural production can be made. This decision reflects the uncertainty and severity of current supply issues. It's adding another layer of complexity to an already volatile market.

Cocoa market dynamics: volatility and economic impact

Rising prices and decreasing supply have led to record futures. Market volatility also increased, exacerbated by factors such as rising margin calls and declining open interest. This environment has made the cocoa trade particularly precarious, with analysts at Citi Research predicting that New York futures could rise as high as $12,500 a tonne in the next three months.

The economic implications are profound, as high cocoa prices increase the risk of bankruptcies within the sector. Processing plants, in particular, risk being priced out of the market. Which, in turn, could help alleviate some pressure on the demand side. However, as Cliff Shelton of AgAmerica points out. While this could temporarily resolve demand issues, the supply outlook remains uncertain and concerning.

Falling demand: a silver lining?

Amid these challenges, there is an emerging trend that could potentially balance the scales: a decline in global demand for cocoa. Recent reports from the National Confectioners Association and the Asian and European Cocoa Associations indicate a significant drop in cocoa grinding, a key indicator of cocoa demand. As milling in North America, Asia and Europe has declined year-on-year, this reduced demand could provide some relief to strained supply chains.

However, it remains to be seen whether this drop in demand will be enough to stabilize the market. The cocoa industry is at a critical juncture, facing both immediate financial risks and long-term sustainability challenges. As the market continues to navigate these turbulent times, stakeholders across the value chain – from farmers to chocolate manufacturers – will need to adapt to a rapidly changing landscape. It could reshape the industry for years to come.

The cocoa market is experiencing a period of significant stress with much at stake for both the global economy and the local communities that depend on cocoa cultivation. How the industry responds to these challenges will be critical in determining the future of chocolate production around the world.