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ANALYSIS: High cocoa prices well-supported by weather concerns

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When ICCO - the International Cocoa Organization - next publishes its latest estimate for cocoa crops in the 2019/20 season it could well boost investment interest.

 

For it will likely highlight the downward revisions rapidly being made for the 2019/20 output from Ivory Coast and now Ghana. Both west African countries have been experiencing hot, dry weather, which is not unusual for this time of year. The conundrum is - to what extent will this weather impact the overall production for both countries?

 

Main-crop almost done

 

In Ghana the cocoa crop year typically starts in October with harvesting the main crop. Port arrivals of cocoa by mid-January have been good, at 596,000 tonnes, 5,000 tonnes more than for the same date during last season.

 

The ICCO put Ghana’s total 2018/19 cocoa production at 815,000 tonnes, 75,000 tonnes less than a February 2019 estimate. Estimates for Ghana’s 2019/20 production at the start of 2020 were around 875,000 tonnes, but that target now looks optimistic.

 

Ghana’s mid-crop results could disappoint

 

The smaller mid-crop cycle, which typically starts in July, is likely to have been adversely affected by recent lack of rainfall. The dryness has reduced the incidence of flowering and the production of young cocoa pods, so the quantity and quality of beans may undershoot expectations.

 

Cocoa futures have recently been near their highest in three years. Yet given that Ivory Coast and Ghana combined produce more than 60% of the world’s cocoa, and that both are suffering adverse weather conditions, the high prices seem well supported right now.

 

 

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