Cocoa prices are experiencing moderate declines today,driven by beneficial rains in West Africa that have improved soil moisture levels and supported cocoa tree development. Farmers in Ivory Coast and Ghana report that recent rainfall has revitalized their crops, leading to the re-flowering of cocoa trees.However,price losses are being tempered by concerns over slowing cocoa exports from Ivory Coast.While government data shows that Ivory Coast farmers have shipped 1.29 million metric tonnes (MMT) of cocoa to ports this marketing year—a 22% increase from last year—the pace of exports has slowed compared to the 35% rise seen in December.

Despite these developments,concerns about West African cocoa production remain a bullish factor for prices. Maxar Technologies,a weather forecaster,has warned that this year's Harmattan winds are the driest in six years, exacerbating crop conditions.Farmers in Ivory Coast and Ghana have observed cocoa trees suffering from the dry and dusty winds,with leaves turning yellow and cocoa pods withering.

The global cocoa deficit is another significant bullish driver.On January 24,the International Cocoa Organization (ICCO) reported that global cocoa stockpiles at the end of the 2023/24 season stood at 1.041 MMT,down 36% year-over-year and below the previous estimate of 1.300 MMT.This suggests that the ICCO's projected global cocoa deficit of 478,000 metric tonnes for 2023/24 may be even larger than initially anticipated.

Tight global cocoa inventories are further supporting prices.ICE-monitored cocoa inventories in U.S. ports have been declining for the past 18 months and, as of January 24,reached a 21-year low of 1,263,493 bags.Additionally, chocolate manufacturer Hershey Co. has sought approval from the Commodity Futures Trading Commission (CFTC) to purchase a large quantity of cocoa through the ICE Futures Exchange due to tight global supplies.Hershey's proposed purchase of over 90,000 metric tonnes exceeds both the exchange's current limits and the CFTC's federal position limit of 49,000 metric tonnes,highlighting the severity of the global cocoa shortage.

On December 18,New York Cocoa futures reached an all-time high, while London Cocoa futures hit a nine-month high, driven by deteriorating mid-crop outlooks in West Africa. Maxar Technologies has warned that dry conditions in the region could harm the development of the mid-year cocoa crop, which is harvested in April,and that the Harmattan winds may worsen the situation.

In a bullish development,the ICCO revised its 2023/24 global cocoa deficit estimate upward to 478,000 metric tonnes in November,the largest deficit in over 60 years.The organization also lowered its global cocoa production estimate to 4.380 MMT,down 13.1% year-over-year, and projected a global cocoa stocks-to-grindings ratio of 27.0%, the lowest in 46 years.

However,high cocoa prices are also causing demand destruction,a bearish factor for the market.The European Cocoa Association reported a 5.3% year-over-year decline in Q4 cocoa grindings,the lowest in over four years,while the Cocoa Association of Asia noted a 0.5% drop in Asian grindings,also a four-year low. Similarly,North American cocoa bean grindings fell 1.2% year-over-year in Q4.

Increased cocoa exports from Nigeria, the world's sixth-largest producer,are another bearish factor. Nigeria's December cocoa exports surged 87% year-over-year to 46,696 metric tonnes. Additionally,Ivory Coast's cocoa regulator,Le Conseil Café-Cacao,raised its 2024/25 production estimate to 2.1-2.2 MMT,up from a June forecast of 2.0 MMT.

On the supportive side,Ghana's Cocoa Board (Cocobod) reduced its 2024/25 cocoa production estimate to 650,000 metric tonnes,down from a June forecast of 700,000 metric tonnes.Ghana's 2023/24 cocoa harvest fell to a 23-year low of 425,000 metric tonnes due to adverse weather and crop disease,further tightening global supplies.

In summary,while beneficial rains in West Africa have provided some relief,cocoa prices remain volatile due to a combination of bullish and bearish factors,including tight global inventories, production challenges, and shifting demand dynamics.Stakeholders will need to closely monitor these developments to navigate the evolving cocoa market.

Disclaimer: On the date of publication,Rich Asplund did not hold positions in any securities mentioned in this article.All information and data are for informational purposes only. For more details,please refer to the Barchart Disclosure Policy.