Cocoa Surges Back To $10,000 A Ton On Growing Supply Fears

(Bloomberg) -- Cocoa futures climbed to the highest in nearly six months on mounting concerns over lower output in West Africa, with global supplies already tight.

The most-active contract rose as much as 2.4% to $10,092 a ton in New York, the highest since June 14, before paring back. Futures are set for a weekly jump of about 5%, the sixth consecutive week of gains.

Prospects for a production recovery in Ivory Coast and Ghana, the world's biggest cocoa growers, are dwindling with a period of dry weather in the region. The onset of the seasonal dusty Harmattan winds could worsen the situation, according to Jonathan Parkman, head of agricultural sales at Marex

“What began like a good crop has suffered poor weather and the prospects for production have deteriorated,” said Parkman. “A tightening balance sheet, when stocks are also low, is causing a bit of concern for the market.”

While bean arrivals to ports in top grower Ivory Coast are currently running ahead of last year's pace, there are fears about the mid-crop harvest. Drier conditions in West Africa could hurt prospects for that cycle which starts in April, according to weather forecaster Maxar Technologies Inc.

That would tighten supplies in a market already grappling with a huge 2023-24 season deficit seen at 478,000 tons, according to the latest data from the International Cocoa Organization. Bean stockpiles in the US have continued to shrink, reaching the lowest since 2004, as companies faced with higher prices drawdown inventories.

Traders like Pierre Andurand have also been increasingly bullish on cocoa, citing a market in structural deficit following consecutive bad harvests and dwindling stockpiles in consuming countries.

“With the current rally barely a year old and supply headwinds likely to worsen for at least four years, the stage appears set for cocoa prices to reach new inflation-adjusted highs,” Andurand, whose hedge fund holds positions in the cocoa market, wrote in an opinion piece for the Financial Times this week.