Cocoa prices surge to record high as cocoa output sinks in Ghana

Cocoa prices on Wednesday continued their parabolic rally to new record highs.

The latest leg higher in cocoa prices was fueled Wednesday after the Ghana Cocoa Board cut its 2023/24 Ghana cocoa production estimate to a 14-year low of 650,000-700,000 MT from a previous forecast of 850,000 MT, citing smuggling and unfavourable weather.

Ghana's cocoa regulator said on August 16 that some of its cocoa farmers are unlikely to fulfil some of their cocoa contracts for a second season. Ghana is the world's second-largest cocoa producer.

Lower cocoa production in the Ivory Coast, the world's largest producer, is a major bullish factor for cocoa prices. Monday's government data showed Ivory Coast farmers shipped 1.12 MMT of cocoa to ports from October 1 to February 18, down -33% from the same time last year.

Cocoa prices have underlying support as the intense seasonal Harmattan winds and insufficient rain in West Africa are drying out cocoa fields and causing damage to the Ivory Coast mid-crop.

On January 25, the Ivory Coast cocoa regulator, Le Conseil Cafe-Cacao, halted forward cocoa sales for the 2024/25 season. The regulator halted forward sales until it had a clear picture of expected cocoa production in the Ivory Coast. The halt adds to the tumult of the region's cocoa supplies, and the impact could multiply supply concerns.

Unfavourable growing conditions and crop disease on West African farms over the past year have curbed cocoa production and fueled a scorching rally in cocoa prices. It has also stoked concern that current cocoa production cannot replenish supplies to avoid a global deficit. According to Maxar Technologies, the total precipitation in West Africa since the rainy season started May 1 has been more than double the 30-year average.

Also, on the bullish side, ICE-monitored cocoa inventories held in U.S. ports fell to a 2-3/4 year low of 4,100,035 bags on January 12. However, they have recently recovered and climbed to a 2-month high on Tuesday.

Smaller cocoa exports from Nigeria, the world's fifth largest cocoa producer, are bullish for prices after Nigeria Dec cocoa exports fell -32% y/y to 24,921 MT.

Cocoa prices remain well supported by concern that an El Nino weather event could undercut global cocoa production. Cocoa prices rallied to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.

Record-high cocoa prices are starting to curb global demand. On January 12, the National Confectioners Association reported that 4Q North American cocoa grindings fell -3.0% y/y to 103,971 MT. Also, the Cocoa Association of Asia reported that Asian Q4 cocoa grindings fell -8.5% y/y to 211,202 MT. Finally, the European Cocoa Association reported that European Q4 cocoa grindings fell -2.5% y/y to 350,739 MT.

The International Cocoa Organization (ICCO) reported that global 2022/23 cocoa production increased +2.4% y/y to 4.938 MMT, and global cocoa grindings increased +0.2% y/y to 5.005 MMT. ICCO estimated end-of-season 2022/23 global cocoa stocks at 1.707 MMT and the cocoa stocks-to-grinding ratio at a 7-year low of 34.5%. ICCO estimated the global cocoa deficit for 2022/23 at -99,000 MT.