Cocoa Prices Set to Remain High on Supply Concerns

By Joe Hoppe

Cocoa prices rise, making a small recovery from last week's price slump. But inflated prices are here to stay for some time yet, according to analysts.

Cocoa futures in New York recently rose 0.7% to $8,752 a ton, regaining some ground after a bruising price crash of 22% in the week ended May 3. This remains some way short of the all-time record, with futures having peaked on April 19 at $11,722 a ton on fears of supply shortages, but they have still more than doubled in the year-to-date.

The slump in recent weeks wasn't driven by market fundamentals, as prospects for crop production haven't improved. Instead, the fall was largely a result of trading maneuvers, said analysts from BMI, a unit of Fitch Solutions.

BMI expects global cocoa production to fall by nearly 12% in the season ending in 2024, to 4.4 million tons from 5.0 million tons a year prior.

BMI's average price forecast for ICE-listed second-month cocoa futures has been hiked to $6,500 a ton, from $6,000 previously, the analysts said in a note.

Farmers in key producing country Ivory Coast have delivered around 1.37 million tons of cocoa to ports so far this season, down from around 1.97 million tons over the same period last season, as the country faces poor harvests due to adverse weather conditions and disease.

Persistently low farmgate prices--the price farmers in Ivory Coast and Ghana are allowed to charge for their crop--will prevent a significant production increase next season, Rabobank commodities analyst Paul Joules said in a report.

At the same time, any cost-driven fall in demand for expensive cocoa likely won't be enough to cool high prices off for some time.

"It's likely that inflated cocoa prices will stick around for the next few years," Joules said. Rabobank estimates prices in the fourth quarter of 2024 will average $7,000 a ton.

Write to Joe Hoppe at joseph.hoppe@wsj.com

(END) Dow Jones Newswires

May 10, 2024 10:09 ET (14:09 GMT)

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