Cocoa prices moderated past their 2-1/2 week low on Tuesday due to increased supplies from Nigeria and an uptick in rainfall.
Nigeria, the world’s fifth-largest cocoa producer, reported that its March cocoa exports rose by 19% year-on-year to 22,199 metric tons.
Cocoa active contracts dropped by more than a fifth of their value in a span of two days, settling at $7,500 a ton in the US after soaring to record highs earlier this year.
The cash crop fell when it began to rain in West Africa, alleviating fears that the crop would be significantly reduced next year.
Prices reached $11,800 per ton in mid-April due to shortages among suppliers and lower yields for growers caused by unpredictable weather, tree illnesses, and low investment.
Around 75% of the world’s cocoa is produced in Ghana, Ivory Coast, Nigeria, and Cameroon, but this year’s harvests could be subpar. Recent official figures highlighted that between October 1 and April 28, Ivory Coast farmers shipped 1.34 million metric tons of cocoa to ports, a 30% decrease from last year. Ivory Coast’s 2023–24 cocoa production, which ends in September, is expected to drop by 21.5% year-on-year to 1.75 MMT, an 8-year low, according to Ecom.
Unfavorable growing conditions and crop diseases on West African farms have reduced cocoa production and driven up cocoa prices in a parabolic fashion.
Recent fundamentals anticipate a global cocoa shortage through 2023–2024 since the present output cannot keep up with demand. Due to the recent volatility in cocoa prices, it has become more expensive to hold positions in cocoa futures because of the steep increase in margin requirements. This forces traders to close out bets and reduces liquidity, making the market susceptible to significant price swings.
The Hydrological Service Agency has warned about severe flooding in the primary cocoa-growing regions of Nigeria, which will cause disruptions to the country’s planting and mid-crop harvest.
The Minister of Water Resources and Sanitation, Joseph Utsev, stated in Abuja that the states prone to flooding are Ondo, Cross River, Osun, Oyo, Ogun, Taraba, and Delta. Ninety-four per cent of the country’s chocolate supply comes from these regions.
Tighter cocoa supplies also result from concerns about the smaller two-yearly harvests in West Africa, known as the mid-crop. Estimates for the mid-crop in Ghana, which begins in July, have been lowered from an earlier estimate of 150,000 MT to 25,000 MT.
Additionally, the Ivory Coast cocoa regulator stated on March 7 that it anticipates a 33% decline to 400,000 MT from 600,000 MT last year in the Ivory Coast mid-crop, which formally begins in April. Furthermore, estimates for Nigeria’s mid-crop have dropped from an earlier forecast of 90,000 MT to 76,500 MT.