In the world of commodities, the cocoa market has been grabbing attention with significant changes in origin differentials and price movements. Origin differentials on the six-month forward cocoa contract in Europe and the U.S. for Ghana, Côte d’Ivoire, Ecuador, and Nigeria have surged, fueled by concerns of a potential supply deficit in the 2022/23 cocoa year. As of June 2023, the differentials in the European market increased at a slower rate compared to New York, indicating distinct market dynamics. European cocoa beans from Ghana and Côte d’Ivoire commanded the highest premium, followed by Ecuadorian and Nigerian cocoa beans. Meanwhile, the U.S. market offered higher premiums for African origins compared to Ecuador, suggesting increased competition for Africa-origin cocoa in the U.S.
Looking at specific numbers, in the European market, the differential for Ghanaian cocoa rose by 45% to reach US$497 per ton in June 2023 compared to US$344 per ton in June 2022. Similarly, Ivorian and Ecuadorian cocoa saw their origin differentials rise by 67% (from US$240 to US$402 per ton) and 13% (from US$370 to US$418 per ton), respectively. Nigerian cocoa witnessed an impressive 156% increase, from US$93 to US$238 per ton. In the U.S. market, Ghana recorded a country differential of US$602 per ton in June 2023, up from US$398 per ton in June 2022. Ecuadorian cocoa experienced a remarkable 70% spike in premiums, reaching US$509 per ton, while premiums for Ivorian beans decreased by 56% to US$247 per ton. However, Nigerian cocoa saw a substantial 93% increase in origin differential, rising from US$228 to US$439 per ton.
Additionally, the cocoa market witnessed remarkable price movements during June 2023. On a year-on-year basis, prices of the first position cocoa contract averaged US$3,182 per ton in London, up by 49% compared to US$2,139 per ton. In New York, the average price of the front-month cocoa futures contract settled at US$3,159 per ton, reflecting a 46% increase from US$2,396 per ton. These price surges placed the monthly average price of the front-month cocoa contract above the symbolic threshold of US$3,000 per ton in both the London and New York markets. While the press reported these as prices not seen in 46 years, it is essential to account for inflation and denominating them in US dollars. This revealed a 6-year high in London and a 3-year high in New York, respectively.
One key factor affecting the cocoa market's volatility is the uncertainties surrounding the supply side, particularly in Côte d’Ivoire. Adverse meteorological conditions, such as heavy rains, raised concerns about potential flooding in the country’s main cocoa growing areas. This posed a significant risk to cocoa plantations and could potentially exacerbate the reduction in Côte d’Ivoire’s cocoa production during the latter part of the 2022/23 mid-crop, extending its detrimental effects to the main crop of the 2023/24 season. Given consecutive years of supply deficit in the global cocoa market, the floods' potential impact on production further contributed to the bullish market sentiment and bolstered cocoa futures prices.
The information provided in this market insight is for general informational purposes and should not be considered as financial advice. It is not intended to offer any financial recommendations or endorsements. Any decisions made based on the content are the sole responsibility of the reader.
Comments