Cocoa Mar '24 (CCH24)

Description

Cocoa is the common name for a powder derived from the fruit seeds of the cacao tree. The Spanish called cocoa "the food of the gods" when they found it in South America 500 years ago. Today, it remains a valued commodity. Dating back to the time of the Aztecs, cocoa was mainly used as a beverage. The processing of the cacao seeds, also known as cocoa beans, begins when the harvested fruit is fermented or cured into a pulpy state for three to nine days. The cocoa beans are then dried in the sun and cleaned in special machines before they are roasted to bring out the chocolate flavor. After roasting, they are put into a crushing machine and ground into cocoa powder. Cocoa has a high food value because it contains as much as 20 percent protein, 40 percent carbohydrate, and 40 percent fat. It is also mildly stimulating because of the presence of theobromine, an alkaloid that is closely related to caffeine. Roughly two-thirds of cocoa bean production is used to make chocolate and one-third to make cocoa powder.

Four major West African cocoa producers, the Ivory Coast, Ghana, Nigeria, and Cameroon, together account for about two-thirds of world cocoa production. Outside of West Africa, the major producers of cocoa are Indonesia, Brazil, Malaysia, Ecuador, and the Dominican Republic. Cocoa producers like Ghana and Indonesia have been making efforts to increase cocoa production while producers like Malaysia have been switching to other crops. Ghana has had an ongoing problem with black pod disease and the crop's smuggling into the neighboring Ivory Coast. Brazil was once one of the largest cocoa producers but has had problems with witches' broom disease. In West Africa, the main crop harvest starts in the September-October period and can be extended into the January-March period. Cocoa trees reach maturity in 5-6 years but can live to be 50 years old or more. The cocoa tree will produce thousands of flowers during a growing season, but only a few will develop into cocoa pods.

Cocoa futures and options are traded at the ICE Futures U.S. and ICE Futures Europe exchanges. The futures contracts call for the delivery of 10 metric tons of cocoa and the contract is priced in US dollars per metric ton.

Prices - ICE cocoa futures prices (Barchart.com symbol CC) in 2023 were well supported and posted the low for the year in January at $2,507 per metric ton. Cocoa prices were supported by concern that an El Nino weather event would cause drought in West Africa and hamper global cocoa production. The unfavorable growing conditions and crop disease on West African farms throughout 2023 curbed cocoa production and fueled a scorching rally in cocoa prices. Continuous rain led to the spread of swollen shoot disease in the Ivory Coast, the world's largest cocoa producer, and undercut its cocoa output. Concern about lower cocoa production in Ghana, the world's second-largest producer, also supported cocoa prices. Ghana's cocoa regulator said in August that some of its cocoa farmers were unlikely to fulfill some of their cocoa contracts in 2023 for a second season. In December, the Ivory Coast's regulator halted forward sales for the 2023-24 Ivory Coast mid-crop so the nation's production forecast could be reviewed. The halt added to the tumult of the region's cocoa supplies, and the impact could multiply if the halt extends into the next season. Expectations of declining cocoa production stoked concern that current cocoa production cannot replenish supplies to avoid a global deficit. The International Cocoa Organization (ICCO) estimated end-of-season 2022/23 global cocoa stocks at 1.707 MMT and the cocoa stocks-to-grinding ratio at a 7-year low of 34.5%. ICCO also estimated the global cocoa deficit for 2022/23 at -99,000 MT. Cocoa prices rallied throughout 2023, posted a 46-year nearest-futures high of $4.478 per metric ton, and finished 2023 up sharply by +61.4% yr/yr at $4,196 per metric ton.

Supply - The world's production of cocoa beans in the 2022/23 crop year rose by +1.4% to 5.584 million metric tons. The world's largest cocoa producer by far is the Ivory Coast, with 38.0% of the world's production, followed by Ghana with 18.9%, and Indonesia with 11.4%. Closing stocks of cocoa in the 2022/23 crop year fell by -5.4% yr/yr to 1.744 million metric tons.

Demand - World seasonal grindings of cocoa in 2022/23 rose by +0.2% yr/yr to 5.002 million metric tons.

Trade - US imports of cocoa and cocoa products in 2023 fell by -11.6% yr/yr to 1.341 million metric tons.

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