The recent record-breaking rally in cocoa and coffee prices has caught the attention of analysts and investors alike. With adverse weather conditions and demand expectations driving the surge, there is a lot of speculation around whether this rally has further room to run. In New York, benchmark ICE cocoa futures traded slightly lower at $9,370 per metric ton on Thursday, after surpassing the $10,000 threshold for the first time. This surge represents an increase of more than 120% so far this year.
According to Citi, cocoa prices are expected to stabilize in a range between $9,000 to $10,000 per metric ton over the next few weeks. The key factors likely to determine whether prices have any further upside include cocoa grindings data and industry statements regarding demand. A significant contraction in first-quarter grindings data and a drop in origin processing could potentially lead to a decrease in prices. However, if grindings only marginally subside and consumer pushback remains limited, prices could quickly target $11,000-12,000 per metric ton.
One of the main reasons for the surge in cocoa prices is the difficult weather conditions and disease affecting production in West Africa. The region, which supplies about 70% of the world’s cocoa, has been hit by heavy rain, dry heat, and disease. Both Ivory Coast and Ghana, the two largest producers of cocoa, have been impacted by these adverse conditions. Additionally, El Niño-related dryness in other parts of the world has also supported the price rally for soft commodities like sugar, coffee, and cocoa.
In addition to cocoa, coffee prices have also seen a rally in recent months. Arabica coffee futures with May delivery climbed above $2 per pound, reaching a new high for the year. This increase can be attributed to a heatwave in Vietnam affecting Robusta coffee production, which in turn is providing support for premium Arabica beans. Citi expects coffee prices to continue rallying in both the short and medium term, with prices expected to trade in a range between $1.88 to $2.15 through the 2024 calendar year.
The surge in cocoa and coffee prices is driven by a combination of factors including adverse weather conditions, production challenges in key regions, and increasing demand expectations. While there is potential for prices to stabilize or even decrease in the short term, the overall outlook remains bullish for both commodities. Investors and traders will need to closely monitor key indicators such as cocoa grindings data and coffee production forecasts to make informed decisions in this volatile market.