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Cocoa Prices Could Rebound Despite Ivorian Rains

Published 03/22/2019, 05:27 AM
Updated 09/02/2020, 02:05 AM
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Rains pouring on Ivory Coast are bringing relief to the West African nation in its hottest month ever, but there’s still some way to go before farmers in the world’s largest cocoa grower can celebrate the prospects of a better harvest.

Cocoa Daily Chart

Cocoa prices have had one of their worst starts to a year, posting losses in ten of the 12 weeks so far and accruing a year-to-date loss of 11%. That makes it the worst performer among agricultural commodities in 2019.

While international market prices for commodities typically rise in tighter supply situations, the price West African farmers get for their physical cocoa is also determined by pod size and whether the beans are of enough quality to be ground into the top-grade butter, cocoa mass and powder required by manufacturers of chocolate, ice-cream and other confection and baked products, as well as cosmetics and drugs makers.

Abundant Showers Helping Crop

Heavy showers were reported in most of Ivory Coast’s cocoa regions last week, setting better harvest conditions for the April-to-September mid-crop, despite lingering concerns about below-average rainfall in the centre of the country.

March is the hottest month in Ivory capital Abidjan, with temperatures averaging 82 Fahrenheit (28 Celsius). The wettest month is May, with an average of 220mm of rain (8.7 inches),

Jack Scoville, analyst at The Price Futures Group in Chicago for soft commodities including cocoa, said in an email to Investing.com that cocoa arrivals were generally steady across West Africa.

He added:

“Ivory Coast arrivals have started to fade as the main crop harvest ends and the mid crop harvest gets started. However, arrivals are still about 10% ahead of a year ago.”

Farmers in the Ivory bush area were also reported saying that harvests would pick up next month, and that beans were already larger than the season a year ago.

They said the current mix of flowers, small pods and cherelles promised a long mid-crop if rainfall remained constant.

In Soubre’s western region particularly, the heart of Ivory’s cocoa belt, moisture was expected to keep the mid-crop healthy.

Q1 Grind Data Key For Pricing

With first-quarter cocoa grind results due in a couple of weeks, there’s potential for cocoa futures to rebound from the numbers reported by grinders and F&B companies such as Olam (OTC:OLMIY), Archer-Daniels-Midland (NYSE:ADM), Blommer Chocolate, Barry Callebaut (SIX:BARN), Cargill (CM:CARG), Cocoa Processing, Mars, Carlyle Cocoa, Hershey (NYSE:HSY), Puratos Group, Lindt & Spruengli (SIX:LISN), and United Cocoa Processor.

At Thursday’s settlement, cocoa’s front-month May contract on ICE Futures U.S. settled down 0.5% at 2,132 a tonne, after hitting a two-week low at $2,113.

Technical analysts on Investing.com rate May cocoa on ICE (NYSE:ICE) as a “Strong Sell” in their daily outlook, pegging Level 3 Fibonacci support at $2,096.33 and a corresponding top resistance at $2,224. Based on Thursday’s settlement, that means May cocoa can have a downside of 1.7% in the near-term, but an even greater upside of 5.2%.

In its outlook for 2020 though, Beroe, which specializes in market research of cocoa, among other things, said demand for cocoa was estimated to rise 30% by next year but unfavorable weather due to climate change could jeopardize global bean supply in that same window.

As such, it added that “investors should expect prices to rise accordingly.”

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