There were those who thought that the cocoa crisis had an expiration date. However, there is increasing pessimism that the global harvest will recover and, consequently, prices will return to normal. This widespread disappointment is what has caused the price of an ounce to rise wildly since the final stretch of 2024. The prices of the raw material contract they have shot up 54% on the London Stock Exchange compared to November, when there were still doubts about a possible recovery. Now pessimism prevails and, although the prospects have improved slightly, they seem totally far from the idea of a return to normality in an otherwise broken market.
Commodity futures They rose precisely 8% this Thursday to $11,242after a Hershey’s mega-purchase that gives up and wants to stock up without waiting for prices to drop. To understand the magnitude of this rise, in January 2024, around this same time, it was trading at $4,000. Of course, this figure is a little away from the highs of December, when pessimism was maximum and reached $11,900. The cocoa crisis is inseparable from West Africa, and the Ivory Coast in particular. This country is responsible, together with Ghana, for 55% of the entire world supply of this raw material. In that sense, their crops had suffered a record collapse due to several factors. The first and most important is El Niño, a cyclical meteorological phenomenon that this year has raised temperatures, caused dry weather and plunged production to its maximum. This has been mixed with several diseases, such as the black pod fungus, which have ended up putting a damper on local production.
The situation was clear: we had to wait for the storm to pass, with the arrival of the next season and renewed production. However, this month we had to assume that this was not going to happen. Although some problems have begun to subside, a new disease known as the outbreak virus cocoa puffCCSV, has begun to devastate fields throughout the Gulf of Guinea. According to the World Cocoa Organization, this virus can reduce the potential production of the raw material by 50%.
This is not the only problem: beyond this, the industry is being devastated by problems such as the high costs of fertilizers, the poor harvest of these years and the economic problems derived from high interest rates. The consequence is that production for the 2024-2025 season will be lower than expected. According to the latest World Bank report, published this week, the prospects for this campaign are “an increase in production of only 17%”. This would lead to “prices 13% lower in 2025 and 2% in 2026” according to his calculations. All this if there are no problems such as the aforementioned virus or “a possible return of adverse weather conditions, which poses a significant risk.”
The deficit continues
From ING they point out that the main problem is that despite an improvement in production that is considered insufficient, stocks worldwide are at very low times and this is being the key. “There are concerns about possible shortages during the season and low stock levels are triggering volatility.” According to the World Cocoa Organization, the global cocoa market recorded a deficit of 478,000 tonnes, the largest in more than 60 years and also the third consecutive year of deficit. The Dutch bank notes that “the deficit brought global cocoa stocks to the lowest level in more than a decade.”
Commerzbank experts led by Carsten Fritsch point out that, although “the arrivals of cocoa beans from Ivory Coast have already grown by 33% (year-on-year) since the start of the season, It should be noted that this “very promising” start means very little given that “we were already coming from very low figures and an increase of this type is something really misleading.” In that sense, “the winds from the Sahara between December and March are going to worsen the problem with smaller harvests.” This is less important for production than a phenomenon like ‘El Niño’, but it undoubtedly represents a blow to the idea of the region once again pumping rivers of chocolate at full capacity.
Warren Patterson, an analyst at ING, acknowledges that conditions have improved but “There are still concerns about the evolution of the climate in West Africa and what it could mean for this season’s production. Current forecasts indicate that West African production, which accounts for more than 70% of global production, will increase slightly. However, there are risks due to recent bad weather.”
For their part, high prices would be necessary to alleviate a completely unleashed demand. “Not only is it likely that prices remain high due to uncertainty over West African crop prospects and stock shortages, but prices must remain high to keep demand in check. Milling (cocoa to chocolate) data in Europe, North America and Asia shows that total processing during the first three quarters of this year increased just 0.7% year-on-year, and that’s after falling 4.2 % year-on-year in 2023″.
From Commerzbank they agree that sinking stocks are the key to explaining the nervousness. According to the International Cocoa Organization, world cocoa stocks at the beginning of the campaign were only 1.3 million tons, the lowest level in 36 years. This problem has worsened because many companies, seeing that there would not be a great recovery, “have closed large purchases to anticipate further price increases.” Something that “there may be a liquidity restriction in the market, which will unleash moments of great volatility.”
An example of how these large companies are closing positions in Hershey. The North American firm closed a purchase of 90,000 metric tons of cocoa. The purchase was so large that he had to request it publicly through the derivatives regulator, which had to offer him permission. This led to a 3.4% drop in the company’s shares.
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