ergint prtma/iStock via Getty Images
ergint prtma/iStock via Getty Images
Chocolate makes people happy. It is sweet, smooth, and melts in your mouth. The rich taste comes from cocoa beans that grow on trees (mostly in West Africa. However, you'll being paying a lot more for your favorite candies in 2024, due to unprecendated weather and disease issues in Ivory Coast, Ghana and Nigeria.
The International Cocoa Organisation recently warned that Ghana faces significant challenges in its cocoa sector that require swift action. As the sector grapples with aged trees, diseases, low farmgate prices, and climate difficulties, cocoa purchases plunged 35% in January 2024 compared to last year. The market is up over 100% since I became concerned about heavy rains and disease issues last summer.
Cotton and cocoa have been the leading Agricultural commodity winners, while grain prices suffer from continued poor demand and a glut of supplies. If El Nino does not weaken to La Nina by the summer, corn (CORN), soybeans (SOYB) and wheat (WEAT) will remain in longer range bear markets.
Agricultural commodities (MarketScreener)
Anyway, I'm also concerned about the long-term sustainability of Ghana's cocoa production. Adding complexity is the EU's upcoming deforestation regulation that could limit output if farms don't comply. The ICCO said major players must address the structural problems facing cocoa.
This video talks not only about the recent explosion in cocoa but how weather is affecting natural gas (UNG), the grain market and more.
Atmospheric rivers and cocoa prices (WeatherWealth newsletter)
Almost all of my research and weather data I collect anticipate a 40% shortfall from its 820,000 metric tonne target for 2023/24. This includes, my analyzing 50 years of historical West African rainfall and crop data and discussions from some leading cocoa analysts, such as Macercafe.
Contributing factors include weather, smuggling, illegal mining, and swollen shoot disease which has already ravaged 500,000 hectares. Efforts are underway to rehabilitate farms and combat smuggling.
Declining output in Ghana and Ivory Coast has pushed cocoa prices to historic highs. As a trader, I'm dealing with unstable demand and prices, with futures surpassing £5,000 and $6,000 per tonne. Prices remain high partly due to weather concerns that El Nino could further hurt global production like in 2016.
With supply shortfalls and ongoing Harmattan winds, the ICCO says bullish prices could worsen. Arrivals at Ivorian ports dropped 34% year-on-year. The downturn has even left major players like PBC and CPC facing financial troubles or on the brink.
Swollen Root Virus decimates West African cocoa (www.bestweatherinc.com)
In addition, last week, Ghana's Cocoa Board drastically cut its 2023/24 production forecast to just 650,000-700,000 metric tons - a 14-year low. They blamed smuggling and bad weather. Some Ghanaian farmers now say they can't fulfill contracts for a second straight season. As the #2 global producer, this is seriously concerning.
Red= the major crops stress in Ghana (WeatherWealth newsletter)
Meanwhile Ivory Coast, the top producer, halted all 2024/25 forward sales until they figure out realistic output given the tumultuous conditions. Their regulator says 2023/24 production, ending in September, may plummet 21.5% year-over-year to a meager 1.75 million metric tons - an 8-year low.
These are just three among many other food stocks whose prices have been hit by El Nino related weather problems.
Hershey (HSY): Higher cocoa prices have helped this stock collapse the last few months
Nestle (OTCPK:NSRGY): This company is dealing with inflations softer consumer demand and higher cocoa prices
Mondelez (MDLZ): The company, along with Hershey, is planning to hike prices even more.
Between poor crops and disease ravaging West African farms this past year (+4 very bullish crop score on my spider), cocoa production is getting crushed. It's fueled a blistering cocoa price rally. I am also worried that current output can't replenish global supplies, leading to a deficit. As a trader, I'm facing immense uncertainty and volatility right now. Notice the anti-herd mentality (-3) bearish), meaning that speculators may be too heavily long this market.
This production crisis threatens to upend the entire cocoa industry.
CC1:COM has seen an 125% move up since last summer; 75% of which has occurred just in the last few. months. The move up in cocoa prices is in a frenzy like many AI stocks. I expect cocoa prices will continue to be volatile but may reach $7000/ton (some 50% higher then the previous 1972 highs).
My total cocoa score (0=neutral) combines all of these factors above. However, it may turn even more bullish again later if El Nino holds on longer than expected.