Cocoa futures have been in a dynamic uptrend for several months, but at levels near $6500 per ton, strong sellers activity has once again emerged recently. Heavy rains forecasted in West Africa have resulted in the liquidation of some of the long positions of speculators who had positioned for further, global supply constraints. New rain forecasts could potentially affect the higher half of Côte d'Ivoire's cocoa harvest, which will begin in mid-April.
- Côte d'Ivoire's expected limited production and yields have projected record highs in futures; the country is the world's largest cocoa producer. Monday's data indicated that the country's cocoa farmers shipped 30% less of the crop from October 1 to March 3 compared to last year. In turn, exports from Nigeria (the world's 5th largest producer) fell 15% year-on-year.
- Last Thursday, the International Cocoa Organization (ICCO) estimated that the global cocoa deficit in 2023/24 will rise to -374,000 MT from -74,000 MT in 2022/23. Production in 2023/24 is expected to fall by -11% y/y to 4.45 MMT, and global milling by almost -5%. As a result, the inventory-to-milling ratio of the commodity will be the lowest in more than 40 years, but this is nothing that would shock markets, which have long been 'playing out' such a scenario;
- At the same time, Ecom Agroindustrial forecasts that Côte d'Ivoire's raw material production in the 2023/24 season (through September), will fall by -21.5% y/y and will be the lowest in 8 years. The market is still worried that the El Niño phenomenon could curb global production., after drought in 2016 supported prices soared to levels not seen since 2004.
- Updated rain forecasts in West Africa, however, suggest that at least some crops are still likely to be successful, and as a result, the market is gaining doubt and positioning itself in case the supply constraints prove to be more temporary;
COCOA chart (D1)
Source: xStation5
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