Cocoa Prices Hammered by Favorable Growing Conditions in West Africa

July ICE NY cocoa (CCN25) today is down -266 (-2.68%), and July ICE London cocoa #7 (CAN25) is down -202 (-3.14%).

Cocoa prices today added to Tuesday’s losses and are sharply lower, with London cocoa falling to a 2-1/2 week low.  Rain forecasts for West Africa are expected to benefit the region’s cocoa crops and are weighing on prices.  Forecaster Vaisala stated Tuesday that moderate to heavy rainfall has fallen in West Africa over the past few days and is expected to persist through the end of the week.

The rebound in current cocoa inventories is also bearish for prices.  Since falling to a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories held in US ports have rebounded and climbed to a 9-month high of 2,310,539 bags Tuesday.

Cocoa prices have some support from the slowing pace of cocoa exports from the Ivory Coast, which could lead to tighter future cocoa supplies.  Monday’s government data showed that Ivory Coast farmers shipped 1.66 MMT of cocoa to ports this marketing year from October 1 to June 15, up +6.4% from last year but down from the much larger +35% increase seen in December.

Signs of smaller cocoa exports are supportive of cocoa prices, following last Wednesday’s news of a -11% y/y decline in Nigerian April cocoa exports to 18,561 MT.  Nigeria is the world’s fourth-largest cocoa exporter.

Late last month, NY cocoa rallied to a 4-1/2 month nearest-futures high on concerns about weather in West Africa.  Despite the recent rain in West Africa, drought still covers more than a third of Ghana and the Ivory Coast, according to the African Flood and Drought Monitor.

Cocoa prices also have support on quality concerns regarding the Ivory Coast cocoa mid-crop, which is currently being harvested through September.  Cocoa processors are complaining about the quality of the crop and have rejected truckloads of Ivory Coast cocoa beans.  Processors reported that about 5% to 6% of the mid-crop cocoa in each truckload is of poor quality, compared with 1% during the main crop.  According to Rabobank, the poor quality of the Ivory Coast’s mid-crop is partly attributed to late-arriving rain in the region, which limited crop growth.  The mid-crop is the smaller of two annual cocoa harvests, which typically starts in April.  The average estimate for this year’s Ivory Coast mid-crop is 400,000 MT, down -9% from last year’s 440,000 MT.