Macro
Cocoa prices dip 2.5% to $8,482 a ton, Rabobank suggests historic rally peak surpassed amid favorable West African rains.
By Athena Xu
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Cocoa futures in New York experienced a downturn, shedding as much as 2.5% to reach $8,482 a ton. This movement comes after a period of heightened volatility and a historic rally that propelled prices to a record high above $11,000 in mid-April, driven by severe shortages. However, recent forecasts of favorable rains in West Africa, a key cocoa-producing region, have contributed to a softening of prices. Rabobank analyst Paul Joules noted that while the peak of the rally seems to have passed, elevated cocoa prices are expected to persist for the coming years due to a mix of weakening global demand and production responses.
The anticipated showers in West African nations such as Ivory Coast and Ghana are expected to benefit crop growth and improve soil moisture in some areas, according to Maxar Technologies Inc. This development has caught the attention of traders, especially following poor harvests that have contributed to a global cocoa deficit for three consecutive years. Despite the recent price decline, most-active cocoa futures in New York were still on track for a 5.3% weekly gain, highlighting the ongoing market sensitivity to production forecasts and weather conditions.
The Ghanaian cedi has marked a record 22-session decline against the dollar, trading 0.3% weaker at 13.9310. This year, the cedi has depreciated by 14%, a significant drop attributed to a near one-third reduction in cocoa earnings and a resurgence of current account deficits. The decline in cocoa earnings is particularly impactful, given the adverse weather conditions, disease, and fertilizer shortages affecting production. This economic backdrop has placed additional pressure on the cedi, with the forward curve predicting a further decline to a record low of 15.98 by year-end.
"While prices are unlikely to return to 'normal' levels quickly, the peak of the rally has passed... A combination of weakening global demand and production responses, particularly from countries without a fixed farmgate price, will help alleviate the pronounced uncertainty baked into current futures pricing. It’s likely that inflated cocoa prices will stick around for the next few years."
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