In a significant development impacting the global chocolate industry, cocoa prices have surged to their highest level in 46 years on the Intercontinental Exchange in London and New York. This surge is primarily driven by adverse weather conditions in West Africa, where cocoa production is threatened. The tight market for cocoa beans, originating primarily from Ivory Coast and Ghana, the world’s largest suppliers, has contributed to the rising prices. Let’s delve into the details of this situation and its implications for the cocoa market.
Cocoa Prices Reach New Heights: Cocoa prices have witnessed a notable increase, responding to concerns of dwindling cocoa bean supplies. The benchmark September contract for cocoa in London rose over 2% this week, reaching £2,590 per metric ton—the highest price since 1977. Similarly, in New York, the September contract rose by 2.7%, reaching $3,348 per metric ton, the highest in 7.5 years. The escalating prices are indicative of a tight market and reflect the challenges faced by the cocoa industry due to adverse weather conditions.
Production and Market Trends: In the 2021/2022 cocoa season, global cocoa production reached approximately 4.9 million tonnes. Côte d’Ivoire and Ghana are the leading cocoa-producing countries, accounting for over 60% of global cocoa production, followed by Ecuador at 7%. Indonesia is the largest producer in Asia. Notably, up to 95% of cocoa beans are traded on international commodity markets, highlighting the significance of the global cocoa trade.
Factors Contributing to Volatility: The cocoa market is known for its volatility, influenced by factors such as political uncertainties, weather-related production challenges, and fluctuations in producing countries. The International Cocoa Organization (ICCO) has widened its forecast for a global cocoa supply deficit, now projecting a deficit of 142,000 metric tons, compared to the previous estimate of 60,000 metric tons. This marks the second consecutive season of supply deficit. Furthermore, the stocks-to-use ratio, a measure of cocoa availability, is expected to reach its lowest level since the 1984/85 season, at 32.2%.
Weather Woes and Crop Impact: Above-average rains in Ivory Coast have resulted in flooding in some cocoa fields, posing a potential threat to the upcoming main crop, scheduled to start in October. Additionally, the excessive rainfall is hampering the drying process for cocoa beans that have already been collected. These challenges further contribute to concerns over cocoa production and supply, ultimately driving the surge in prices.
The significant surge in cocoa prices to a 46-year high on the Intercontinental Exchange reflects the challenges faced by the cocoa industry due to adverse weather conditions in West Africa. The tight market for cocoa beans, compounded by potential crop damage, has driven prices upward. The implications of these price increases will be felt across the global chocolate industry. As the industry grapples with supply concerns, stakeholders will closely monitor weather patterns and market dynamics to assess the future trajectory of cocoa prices.
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