In recent days, cocoa price has significantly increased as it has continued their upward trend for six weeks. The nearest-futures agreement (Z24) for NY cocoa reached a six-month peak, while the contracts for NY and London cocoa recorded new highs.
Why Is Cocoa Price Rising?
According to Maxar Technologies, the dry circumstances in West Africa will hamper the initial growth of the year's halfway cocoa crop picked in April, and the onset of the annual Harmattan winds may worsen matters.
The world's declining cocoa reserves are also encouraging for prices. After declining for the previous one and a half years, ICE-monitored cocoa stocks in US ports hit a 20-year low of 1,464,328 bags on Tuesday.
The International Cocoa Association's (ICCO) decision on November 22 to increase its 2023–2024 global cocoa shortfall projection from May's -462,000 MT to -478,000 MT—the worst deficit in more than 60 years—also supported the most recent leg up in cocoa prices.
Additionally, ICCO reduced their projection of cocoa production for 2023–2024 from 4.461 MMT in May to 4.380 MMT, a -13.1% year-over-year decrease. ICCO predicted a 46-year low of 27.0% for the worldwide cocoa stocks/grindings percentage in 2023–2024.
Cocoa Bud Death: A Matter Of Concern
Reports of high cocoa bud death rates on trees have been caused by heavy rains in West Africa, which has also caused a dramatic increase in cocoa prices. In the Ivory Coast, heavy rains have also impacted crop quality, inundated farms, and raised the possibility of disease.
With counts of roughly 105 beans for 100 grams, recently picked cocoa seeds from the Ivory Coast indicate lesser quality. The Ivory Coast cocoa controller permits exporters to purchase bean quantities of 80 to 100 or a little higher per 100 grams, with the smaller count being the highest quality cocoa.
Cocoa Demand Conflicts The Bull Run
The news about cocoa demand recently was conflicting. On October 17, the National Confectioners Association announced that North American cocoa grindings increased by +12% yearly to 109,264 MT.
Additionally, in the third quarter, Asian cocoa grinding increased +2.6% year over year to 216,998 MT, according to the Cocoa Association of Asia. Nonetheless, the European Cocoa Association states that European Q3 cocoa grindings decreased -3.3% yearly to 354,335 MT.
When Ghana's Cocoa Board (Cocobod) reduced its 2024–2025 Ghana cocoa cultivation forecast to 650,000 MT from a June projection of 700,000 MT, cocoa saw support. Ghana's 2023–2024 coca harvest fell to a 23-year reduction of 425,000 MT due to unfavorable weather and diseased crops. The 2024–2025 cocoa harvest in Ghana, the second-largest producer in the world, starts in October.
Cocoa Prices Technical Analysis
In the daily chart of Cocoa price, the recent price showed a strong bullish pressure, eliminating sellers from the bottom. In that case, investors might consider the ongoing market momentum as bullish, from where a potential continuation could happen.
In the broader context, the dynamic 200 day SMA is the major support, signalling a long-term bullish trend. Moreover, the 50 day EMA is immediate support, working as a confluence bullish signal after a range breakout.
Based on this outlook, investors might consider the ongoing market momentum as bullish as long as the high volume line remains below the current price of Cocoa. In that case, any minor downside correction could be a long opportunity, aiming for the 13200.00 level.
On the bearish side, an immediate upward pressure with a failure to overcome the 12243.10 level could signal a bearish signal, aiming for the 50-day EMA as the primary target level.
