Last week, cocoa prices shot up again as investors worried about the implications of an El Nino meteorological phenomenon on global cocoa production.
Cocoa futures prices reached their highest level in a month last Friday, adding to the gains witnessed on Thursday due to fears over the El Nino weather phenomenon. It is worth noting that cocoa prices reached a 12-year high in 2016 as a result of an El Nino event that caused a drought that severely damaged global chocolate supply.
This is especially remarkable given that the world’s largest cocoa producer, Ivory Coast, is already suffering a supply drop.
The US Climate Prediction Center announced last Thursday that sea surface temperatures in the equatorial Pacific Ocean were 0.5 degrees Celsius higher than usual, and wind patterns indicated the presence of El Nino conditions. In April, the Climate Center upgraded the likelihood of an El Nino weather pattern forming between August and October to 94 percent, up from 74 percent in April.
Reduced supply from the Ivory Coast, according to Barchart, a website that tracks the cocoa futures market, is another reason supporting cocoa prices. In the first two weeks of May, the Ivory Coast government revealed that farmers delivered a total of 2.09 million metric tons (MMT) of cocoa to the country’s ports during the 2022–23 marketing year, representing a 3.0 percent year-on-year decrease.
According to a statement given by the agricultural minister of Ivory Coast on March 31, the mid-crop harvest, which began on April 1 and is the smaller of the country’s two annual harvests, is expected to be 25% lower than the previous year, totaling 450,000 metric tons (MT).
Concerns about the quality of the Ivory Coast’s mid-crop cocoa triggered a price increase last month, with prices reaching their highest level in 6-3/4 years. According to Barchart, farmers reported poor cocoa quality, with an average bean count of 120 per 100 grams. Exporters want bean counts ranging from 80 to 100 per 100 grams, with lower bean counts indicating superior cocoa quality.
Price increases have also been aided by a decrease in Nigerian cocoa supplies. According to the Cocoa Association of Nigeria, the country’s cocoa exports declined by Nigeria, is the world’s fifth-largest cocoa bean producer.
The International Cocoa Organization’s (ICCO) forecasts from last month increased cocoa prices even higher. According to the ICCO, global cocoa stockpiles would shrink by 3.5 percent year on year to 1.653 MMT in 2022–23. According to the organization, weather changes, particularly in West Africa, have greatly exacerbated the risk of a supply deficit. According to the ICCO, worldwide cocoa output will increase by 4.1 percent year on year to 5.017 MMT in 2022/23, while global cocoa grindings will fall by 0.6 percent year on year to 5.027 MMT.
The ICCO’s quarterly report, released on December 1, forecast that cocoa prices would climb. According to the report, global cocoa production declined by 8.0 percent year-on-year to 4.823 MMT in 2021/22 due to bad weather and diseases that reduced cocoa yields.
Furthermore, the ICCO amended its former forecast for global cocoa production downward by to 306,000 mt, up from the September expectation of 230,000 mt. The previous season, worldwide cocoa production reached a record high of 5.242 MMT, resulting in a 209,000 MMT surplus in the global cocoa market.
Nonetheless, increased cocoa inventories have an adverse effect on pricing. Monitoring cocoa stockpiles at US port warehouses reached an 8-year, 3-month high of 5,730,012 bags on May 22. Cocoa stockpiles held in European port warehouses reached an 8-3/4 month high of 147,440 mt on May 15, according to ICE monitoring records.
Global cocoa demand has increased.
Rising global cocoa demand is driving up market prices. According to current estimates, there are some optimistic signals that this upward trend will continue. According to the National Confectioners Association, cocoa grindings in North America climbed by 2.4 percent in the first quarter compared to the previous month but declined by 4.4 percent year on year, reaching 109,666 metric tons (MT). Similarly, the Cocoa Association of Asia reported on April 20 that cocoa grindings in Asia increased by 4.09 percent year on year in the first quarter, totaling 222,028 metric tons.
According to figures issued by the European Cocoa Association on April 13, cocoa grindings in Europe climbed by 0.5 percent year on year during the first quarter, totaling 375,375 mt. This year saw the most Q1 grindings since 1999. Furthermore, on April 19, a cocoa exporter group made up of six large cocoa grinders announced that its first-quarter cocoa processing grew by 22% year on year, totaling 189,405 mt.
The weather conditions
The Pacific Ocean generally sees normal conditions when trade winds move westward along the equator, transporting warm water from South America to Asia. As a result, cold water rises from the depths, repeating the water cycle via a process known as upwelling. This natural rhythm, however, can be disrupted by the El Nio and La Nia climate occurrences, which together create the El Nio-Southern Oscillation (ENSO) cycle.
These phenomena have far-reaching global ramifications, affecting weather patterns, wildfires, ecosystems, and economies. El Nio and La Nia phases often last nine to twelve months, but in certain circumstances they might span several years. Although El Nio and La Nia occurrences occur on average every two to seven years, there is no set timetable for their occurrence. On average, El Nio events occur more frequently than La Nia events.