Cocoa production down by 54%

Cocoa production in key West African countries dropped significantly at the end of 2021, according to the latest figures from the International Cocoa Organisation (ICCO).

According to the ICCO, purchases of graded and sealed cocoa beans in Ghana for the 2021/22 cocoa year as at 6th January 2022, were reported at 263,000 tonnes, down from 570,000 tonnes recorded a year earlier. This represents a year-on-year decline of 54 percent.

The latest Cocoa Market Report shows that Ghana’s purchases and arrival cocoa beans dropped by 13.5 times the decline experienced in its neighboring country and leading world producer of cocoa, Cote d’Ivoire.  However, the ICCO noted that a good crop is still anticipated for the 2021-22 season, despite the decline in arrivals and purchases of cocoa beans from the two-top producing countries in December last year.

“The adequate temperature and rainfall together with the mild Harmattan recorded in the previous months anticipated a good crop for the 2021/22 season. Notwithstanding that, arrivals and purchases of cocoa beans from the two-top producing countries were reported to be down by 4% in Côte d’Ivoire, and a staggering 54% in Ghana” a statement from ICCO revealed.

In its Cocoa Market Report for December 2021, the International Cocoa Organization stated that at this stage, “it is unknown whether, we are in presence of a poor season or other factors are affecting the evacuation of beans from upcountry”.

According to Le Conseil du Café-Cacao, since the beginning of the 2021/22 season, arrivals at ports reached 1.178 million tonnes as at 16th January 2022, down from 1.227 million tonnes recorded a year ago.  Also, exports of cocoa beans from Cameroon were reported to be lower than expected. It is for now unclear whether internal constraints are slowing down the evacuation of cocoa beans from upcountry, the ICCO stated in the report.

Bullish Markets On Demand Optimism

An overall positive trend was observed in the prices of the December 2021 (DEC-21) and March 2022 (MAR-22) cocoa futures contracts during December 2021. The ICCO explained in the report that this trend was fueled by the optimism on demand for cocoa products, in at least the mid-term, and the low year-on-year arrivals recorded in main cocoa producing countries in Africa.

Before reaching its expiration date (15 December), the DEC-21 contract generally traded at lower prices compared to the deferred one (MAR-22) on both sides of the Atlantic. In London, the front-month contract (DEC-21) was priced at US$135 per tonne cheaper compared to the MAR-22 contract whereas in New York, an average discount of US$19 per tonne was applied on prices of the DEC-21 contract compared to the MAR-22 one, the ICCO stated.

Back in December 2020, futures markets presented different configurations with the London one being in “contango” while in New York, cocoa futures market was in a pronounced backwardation.

“It is worth noting that the contrasting market configurations observed a year ago in both London and New York was an after-effect of the Exchange of Futures for Physical (EFP) that occurred in New York, thus creating a strong market tension over the DEC-20 contract”.

Stronger prices in London and New York

During the month under review, the MAR-22 contract priced stronger on both the London and New York markets. This, according to the ICCO, was due to the anticipation of improvements in the demand; and the year-on-year lower arrivals of cocoa beans in main cocoa producing countries.

Hence, compared to their settlement values recorded during the first trading day of December, prices of the MAR-22 contract moved upwards on both sides of the Atlantic, increasing by 6% from US$2,181 to US$2,304 per tonne and by 8% from US$2,342 to US$2,530 per tonne in London and New York respectively.

At this junction, it remains undetermined whether the observed low arrivals are caused by a poor crop – despite the conducive growing conditions – or other reasons, the ICCO iterated.

At the end of 2021, the annual average price of the nearby contract in London tumbled by 5% compared to the previous calendar year.  During the same period in New York, the average of the first position contract prices weakened by 1% year-on-year.

Furthermore, the annual average of the US-denominated ICCO daily price stood at US$2,427 per tonne, up by 3% compared to level reached the previous year. On the contrary, the average of the Euro-denominated prices slightly dropped by 1% year-over-year, attaining €2,054 per tonne in 2021.