On Wednesday, cocoa plunged on profit-taking as fears of a supply crunch drove West African farmers to contemplate switching crops.
US cocoa futures for May delivery slid 0.23% to $7,033.00 per metric ton (MT) on March 13. Nonetheless, industry experts expect a 1.81% recovery to $7,162.00 per MT in the coming market session.
The sweet commodity touched the $8,000.00 resistance point for the first time on Tuesday, sending traders scrambling to dispose of their stock. The Ivory Coast and Ghana, the world’s top cocoa producers, struggled with poor harvests three years in a row.
Cocoa prices have surged over 35.00% since the start of the 2023/24 crop season in October. Furthermore, they have risen by a staggering 132.00% year-over-year compared to the same period in 2023.
Industry watchers anticipate the Ivory Coast’s mid-crop at approximately 400,000.00 MT, 33.00% lower than a year ago. In addition, the International Cocoa Organization forecasted a global deficit of 374,000.00 MT in the current crop year.
El Niño, a weather phenomenon that causes abnormal climate patterns, devastated West African farming regions since last year. It brought hefty rainfall to the Ivory Coast and severe drought to Ghana.
Moreover, the aberrant weather led to diseases in the cocoa belt, including the swollen shoot virus in the Ivory Coast and the black pod disease in Ghana. These two diseases cause cacao trees to rot while degrading the quality of harvested cacao pods.
Consecutive years of deteriorating yields have forced West African cocoa farmers to consider planting a different crop, worsening the supply crunch. Several major Ivory Coast and Ghana processing plants have reduced output or halted operations as bean prices have soared.
Processing plants purchase beans from farmers, process them into butter and liquor, and sell them to chocolate makers. Many plans have stopped procuring new raw materials, choosing to go through their stockpiles to avoid the surging prices.
Ghana’s state-owned Cocoa Processing Company operates at around 20.00% capacity and may shut down after its stock runs out. Struggling to find buyers, West African farmers are looking to explore other crop options.
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