Cocoa Shortage Exceeds Expectations Amid Sustained Demand Despite Rising Prices

The International Cocoa Organization (ICCO) has revised its global cocoa deficit forecast for the 2023/24 season, predicting a shortage of 439,000 metric tons. This figure is a significant increase from the previous forecast of 374,000 tons, driven by sustained consumption despite higher prices.

Global cocoa production is expected to fall by 11.7% to 4.461 million metric tons, while grindings, a measure of demand, are expected to decline by 4.3% to 4.855 million metric tons. Stocks at the end of the 2023/24 season are forecast to fall to 1.328 million tons, equivalent to 27.4% of projected annual grindings, a level not seen in the last 45 years.

Why this matters: The global cocoa shortage has significant implications for the chocolate industry and consumers worldwide. This shortage could lead to higher prices, reduced production, and potential disruptions to global supply chains.

The ICCO noted, "Though at the start of the season, there was uncertainty regarding cocoa demand following increasing cocoa prices, current data reveal that cocoa grinding activities have so far been unrelenting in importing countries."

The World Bank's Commodity Markets Outlook report for April 2024 also highlights a projected decrease in global cocoa production by more than 10% in the 2023-24 season, dropping from 4.9 million metric tons to 4.4 million metric tons. Lower-than-expected outputs in Côte d'Ivoire and Ghana, which account for over half of the world's cocoa production, are major contributors to this decline.

Cocoa exports surged to nearly three times higher than they were a year ago, surpassing $11/kg in mid-April. However, prices fell significantly in May, trading below $8/kg, partly driven by the return of seasonal rains in Côte d'Ivoire, improving supply expectations.

Despite the expected decrease in production, global cocoa supplies are projected to improve in the 2024-25 season, particularly in Côte d'Ivoire, which is addressing domestic supply bottlenecks. However, demand is expected to decrease, leading to a projected weakening of cocoa prices in 2025.

The ICCO also revised up its global deficit forecast for the 2022/23 season to 76,000 tons from 74,000 tons. The organization noted that grindings in producing countries have slowed down because of a lack of beans.

Ghana, the second-largest producer of cocoa, has seen its cocoa exports plunge in the first quarter of 2024, dampening the country's trade surplus growth. Ghana's cocoa export value in Q1 2024 dropped to $592.2 million, down from an average of $825.8 million in the comparable period last year and prior two opening quarters.

The country's 2023/24 cocoa harvest is forecasted to be only 422,500 metric tonnes (MT) to 425,000 MT, half the initial forecast and a 22-year low, resulting from extreme weather and disease. 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.

Despite posting a Q1 2024 trade surplus of GH¢11.5 billion ($1.35 billion), more than double the GH¢4.5 billion surplus a year earlier, Ghana's trade figures reveal an underlying lack of real trade growth once prices are accounted for. In real terms, Ghana's trade value in Q1 2024 was just GH¢47 billion after discounting price effects, less than half the nominal GH¢107.6 billion figure.

The cocoa shortage this season highlights the unpredictable nature of the commodities market, with various factors contributing to price swings. Inflation, supply shortages, and energy demand from artificial intelligence developments are driving factors in the commodities market.

Key Takeaways

• ICCO forecasts a global cocoa deficit of 439,000 metric tons for the 2023/24 season.
• Global cocoa production to fall by 11.7% to 4.461 million metric tons.
• Cocoa stocks to fall to 1.328 million tons, a 45-year low.
• Higher prices and reduced production expected due to the shortage.
• Global cocoa supplies to improve in 2024-25, but demand to decrease.