Backwardation structure persists in cocoa market highlighting supply challenges
In a tumultuous turn of events, the global cocoa market has been thrust into a frenzy as production declines from key West African players, Côte d’Ivoire and Ghana, send prices soaring.
According to the latest Cocoa Market Report from the International Cocoa Organization, released in March 2024, the sector is grappling with a perfect storm of supply constraints, propelling cocoa prices to unprecedented heights.
At the onset of March, cocoa prices stood at a modest US$7,109 per tonne. However, by the month’s close, the nearby contract in London surged by a staggering 47%, reaching an eye-watering US$10,455 per tonne. Similarly, New York witnessed a formidable 44% uptick, catapulting prices from US$6,769 per tonne to US$9,729 per tonne.
This surge in prices is further compounded by the lingering backwardation structure of the cocoa market, which serves as a stark reminder of the acute supply challenges plaguing the industry and the resultant inflationary pressures.
The predicament in Ghana, one of the world’s top cocoa producers, appears to be entrenched, owing to a confluence of adverse factors. Rampant infections of the lethal swollen shoot virus disease, coupled with the scourge of illegal mining encroaching upon cocoa farmlands, alongside the looming specter of aging cocoa trees and unfavorable weather conditions, have collectively engineered a structural production deficit.
Meanwhile, Côte d’Ivoire, the largest cocoa producer globally, grapples with its own set of challenges. While its production shortfall seems to be a more transient phenomenon, recent reports paint a troubling picture, with estimates suggesting that between 25% to 30% of Ivorian cocoa farms are now besieged by Cocoa Swollen Shoot Virus Disease (CSSVD).
As the market braces for the onset of the 2024/25 season, all eyes are fixed on the trajectory of cocoa prices and the ensuing implications for the industry’s balance sheet.
Amidst the prevailing uncertainties, stakeholders are compelled to recalibrate strategies in response to the evolving dynamics, with an acute emphasis on navigating the formidable headwinds confronting cocoa production in the region.
In the face of these mounting challenges, the imperative for concerted action to mitigate the spread of diseases, combat illegal mining activities, and rejuvenate aging cocoa plantations has never been more pressing. Only through resolute collective efforts can the cocoa industry hope to weather the storm and emerge resilient in the face of adversity.
