May ICE NY cocoa (CCK24) this morning is down -112 (-1.14%), and May ICE London cocoa #7 (CAK24) is up +35 (+0.43%).

Cocoa prices this morning are mixed as prices consolidate below Tuesday's all-time highs.  Today’s rally in the dollar index to a 6-week high fueled some long liquidation pressure in cocoa futures.  

Concern about shrinking global cocoa supplies has supported cocoa prices, with record highs posted on Tuesday.  On Monday, Ghana's Cocoa Board (Cocobod) said Ghana's 2023/24 cocoa harvest might be only 422,500 MMT to 425,000 MT, half the country's initial forecast and a 22-year low, as extreme weather and disease decimated the cocoa crop.

Lower cocoa production in the Ivory Coast, the world's largest producer, is a major bullish factor for cocoa prices.  Monday's government data showed that Ivory Coast farmers shipped 1.28 MMT of cocoa to ports from October 1 to March 24, down by 28% from the same time last year.  Trader Ecom Agroindustrial projects Ivory Coast 2023/24 cocoa production, which ends in September, will fall -21.5% y/y to an 8-year low of 1.75 MMT.  

Concerns about the West African mid-crop, the smaller of two annual harvests, are also leading to tightness in cocoa supplies.  Projections for the Ghana mid-crop, which starts in July, have been cut to 25,000 MT compared with an earlier forecast of 150,000 MT.  Also, the Ivory Coast cocoa regulator said on March 7 that it expects the Ivory Coast mid-crop, which officially starts in April, to fall -33% to 400,000 MT from 600,000 MT last year.  In addition, projections for Nigeria's mid-crop have been reduced to 76,500 MT from an earlier estimate of 90,000 MT.  

Because of limited supplies, global cocoa grinders are paying up in the cash market to secure cocoa supplies this year due to growing concerns that West African cocoa suppliers may default on supply contracts.  Cocoa prices have more than doubled (+133%) since the beginning of the year, driven by the worst supply shortage in 40 years.

Smaller cocoa exports from Nigeria, the world's fifth largest cocoa producer, are bullish for prices after Nigeria's Feb cocoa exports fell -18% y/y to 26,103 MT.

Also on the bullish side, ICE-monitored cocoa inventories held in U.S. ports fell to a 3-year low of 4,054,349 bags last Monday.

Cocoa found support on February 29 when the International Cocoa Organization (ICCO) projected that the global 2023/24 cocoa deficit would widen to -374,000 MT from -74,000 MT in 2022/23.  ICCO projects global cocoa production in 2023/24 will fall by -11% y/y to 4.45 MMT, and global cocoa grindings will drop by nearly -5%, which would push the 2023/24 stock-to-grindings ratio to the lowest in more than 40 years.  

Unfavorable growing conditions and crop disease on West African farms over the past year have curbed cocoa production and fueled a parabolic rally in cocoa prices.  A global cocoa deficit is expected to extend into 2023/24 since current production is insufficient to meet demand.  Also, cocoa prices are seeing support from the current El Nino weather event after an El Nino event in 2016 caused a drought and a rally in cocoa prices to a 12-year high.

On January 25, the Ivory Coast cocoa regulator, Le Conseil Cafe-Cacao, halted forward cocoa sales for the 2024/25 season.  The regulator halted forward sales until it had a clear picture of expected cocoa production in the Ivory Coast.  The halt adds to the tumult of the region's cocoa supplies, and the impact could multiply supply concerns.

Record-high cocoa prices are starting to curb global demand.  On January 12, the National Confectioners Association reported that 4Q North American cocoa grindings fell -3.0% y/y to 103,971 MT.  Also, the Cocoa Association of Asia reported that Asian Q4 cocoa grindings fell -8.5% y/y to 211,202 MT.  Finally, the European Cocoa Association reported that European Q4 cocoa grindings fell -2.5% y/y to 350,739 MT.
 

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