Cocoa market update: Supplies subside

Cocoa futures have surged 60% on the New York contract and 75% on the London contract year-to-date (rolling second contracts). This rally is partly driven by fundamental factors: after two consecutive global deficits, the consensus is that another one will follow in 2023/24. This means the market is, and will remain, very tight. In our recently published Outlook 2024: Buyers sail home on rising supplies, cocoa futures were one of the few exceptions to the prevailing price weakness we observed across many commodities. While we anticipate a moderate cooling of prices in 2024, it will not result from an improving supply picture. Instead, a decline in demand is expected to be the primary factor leading to lower prices in 2024. However, we still expect prices to remain inflated in 2024, as ongoing supply-side issues seem set to limit downside potential. In this report, we delve into the factors influencing prices in 2024 and whether current price levels are justified.

Disease, weather, and aging trees have impacted cocoa yields and resulted in supply-side issues that have led to a mammoth rally for cocoa futures.

The global cocoa balance sheet is likely heading for its third-consecutive global deficit in the 2023/24 season.

We anticipate global grindings to decline in 2024. However, with the current stocks-to-use ratio at an all-time low, the market will remain tight.

Speculators will play a pivotal role in dictating price direction in 2024. At present, they are holding a large net long position on both London and New York.