The Cocoa Price Conundrum

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The cocoa market must solve the growing conundrum on the outlook for prices as the sector races towards the start of the 2022/23 season. Whilst farmers in Côte d’Ivoire and Ghana, producing nearly two-thirds of global cocoa, have been reassured by benign weather (the effect of an active La Niña), a fertiliser scarcity, exacerbated by the ripple effect of the war in Ukraine, could potentially undermine yields as early as during the small crop in Q2 and Q3-2023. This is threatening the viability of cocoa-growing as a business and compelling farmers to demand higher prices as physical buying gathers pace. Countries like Cameroon are regretting shortfalls in output, especially after grinding data from Europe and Southeast Asia showed higher Q2-2022 demand.

Franc Opinion: Overall we remain bearish cocoa in the short term. Not only is franctrade noticing waning speculative demand, but industry reports suggest these elevated levels of grindings could have been frontloaded to avoid the much-advertised pain of higher pipeline energy prices. Further, a moderate increase in output, a strong dollar and global pressures on disposable incomes, emanating from the cost of living crisis, will keep a lid on cocoa prices, well below the USD 3,000/tonne mark in New York in the coming season.

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