Cocoa prices: Is the rise in demand enough to solve current supply woes

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Jan 19, 2021
  • North American cocoa bean grindings rose by 6.95% in 2020's fourth quarter.
  • Cocoa farmers in Ivory Coast are holding protests as stockpiles exceed 100,000 tonnes.
  • Cocoa prices are up by 1.08% but are finding resistance around the $2535 price level.

Cocoa prices are trading at around $2527, which is an increase of 1.08%. The prices are reacting to the released data on the rise in North American cocoa bean grindings. The numbers are an indication that the commodity’s demand rose in the past quarter. However, on a 4-hour chart, cocoa prices are finding resistance around the $2535 level as stockpiles continue to build up in Ivory Coast.


Ivory Coast’s cocoa stockpiles increase

On the side of the supply, cocoa prices are reacting to the inventories build-up in Ivory Coast. On Monday, cocoa farmers in this top cocoa producer started peaceful protests against the ongoing shortage of bean buyers.

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There are over 100,000 tonnes of cocoa beans stocked in cooperatives and farms within this western African country. The unsold amount equates to about a third of the nation’s monthly production during the current season.

Notably, the situation is a vicious cycle affecting all the stakeholders, including the exporters, cooperatives, and farmers. According to the Ivorian cocoa exporters, chocolate manufacturers within the United States and Europe asked for the postponement of the October-December deliveries to the January-March period.

The rescheduling has resulted in lesser cocoa bean shipments from the country. In an attempt to deal with this situation, the Coffee and Cocoa Council has paused on registering additional produce from cooperatives. Subsequently, cooperatives no longer have the space or funds to buy from farmers.

In addition to the inventories build-up, farmers are also protesting against the lower-than-promised prices. Late last year, cocoa farmers in Ghana and Ivory Coast raised concerns over the unwillingness of some chocolate companies to mee the set premium of $400 a tonne.

Germain Koffi, a leader of the Anaproci farmers’ group has indicated that the buyers demand that the cooperatives document payments of 1,000 CFA francs to the farmers, yet they only pay 800 CFA francs. The low prices have been frustrating to farmers who live in poverty and rely solely on the venture for their basic needs.  

Cocoa grindings rise

Increased cocoa beans supply been associated with the coronavirus-related decline in the demand for chocolate and other confectionaries. However, recent data indicates a rise in demand; which is good news to those looking to invest in commodities like cocoa.        

In Q4’20, North American cocoa grindings rose by 6.95% to reach 118,043 metric tonnes. The data released by the National Confectioners Association on 14th January is usually a measure of demand. The report, which focuses on grinds in the United States, Canada, and Mexico, has encompassed 17 manufacturing plants. Among the reporting companies is Nestle, Mars Wrigley Confectionery, and Barry Callebaut.  

On Monday, GEPEX, an association of Ivorian cocoa exporters, also released data indicating that grinders had processed 147,000 tonnes as of 31st December. The figure is an increase of 5,000 tonnes YoY.

Numbers on Europe’s cocoa bean grindings for Q4’20 are scheduled to be published on 20th January. It will be interesting to see the commodity’s demand level and how cocoa prices react to the data.

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