Cocoa price forecast: no end in sight for this rally

Cocoa price is still in a relentless bull run as concerns about supply continue rising. It was trading at $6,000 on Thursday, its highest point on record. This is a major rally since the price was trading at $2,196 in September 2022. It has become the best-performing commodity in the past few years.

Demand to be limited for a while

Cocoa prices have surged in the past few months because of weather and natural causes. Indeed, data shows that the commodity has risen continuously in the past six weeks as supplies run low.

The main issue, as I have written before, is that the top growing areas in Ghana and Ivory Coast are going through strong humidity. Cocoa does not thrive in such conditions, which has affected yields at a time when demand is rising. This humidity has also led to disease, which is not easy to treat.

Worse, production in Nigeria, the world’s fifth-biggest market, is in a downward trend. Most recently, a major fire affected about 80 acres of cocoa farms in the country. 

All these factors have led to lower cocoa production. Just last week, Ghana’s cocoa board announced that arrivals dropped by 35% YoY. In Ivory Coast, analysts estimate that production will drop by 28.5% in the current quarter.

These factors have led to a major challenge in the cocoa market. Unlike in crops like corn and soybeans, which have shorter seasons, cacao trees take between 5 to 6 years to give its first fruit. This means that farmers interested in taking advantage of the surging price can do nothing for now.

The other issue is that cocoa can only grow in abundance in West African countries. As such, other countries can't take advantage of the price increase. And even if they did, it will take many years before they start benefiting. 

Therefore, there is no easy way out for the surging cocoa prices because of the supply issue in the market. In a statement, an expert I talked to said:

Cocoa price forecast

Cocoa chart by TradingView

Turning to the weekly chart, we see that the price of cocoa has gone parabolic in the past few years. It has risen in the past six weeks straight and the trend is gaining momentum. It remains above all relevant moving averages.

Further, the Percentage Price Oscillator (PPO) has moved to its highest level on record. The Relative Vigor Index (RVI) has continued rising. Therefore, the next point to watch will be at $6,500. This rally may only change if there is a clear picture of higher supplies.