KANSAS CITY, MO. — The global cocoa market has endured mixed supply and demand signals this year, which means uncertainty now – and in the months ahead.

In a nutshell, cocoa bean futures in London reached all-time highs in October while New York futures set multi-decade highs. Forces driving prices higher included a global deficit in 2022-23 and forecast lower cocoa bean production in West Africa in the 2023-24 marketing year that began Oct. 1.

The slow pace of port arrivals in top-producing Ivory Coast in what is expected to be a weather-reduced 2023-24 crop added fuel to the fire. Oct. 1-29 port arrivals of 227,000 tonnes were down 23% from the same period a year earlier.

The nearby London cocoa bean future traded up to £3,385 per tonne on Oct. 30, the highest price since trading in the contract began in 1919. The New York spot future reached $3,880 per tonne on the same day, the highest since December 1978.

It should be noted cocoa bean futures are one of the more speculation-driven markets, which tends to result in extreme price movement — both higher and lower. Speculative funds holding large net long positions are at least in part behind the price runup that isn’t supported by fundamentals in the eyes of some market analysts.

Cocoa bean production in the Ivory Coast in the 2023-24 season is forecast by the state cocoa regulator down about 25% from the prior year. Together with neighboring Ghana, the two West African countries account for more than 70% of global cocoa bean production.

Due to concerns about the crop, the Ivory Coast cocoa regulator — the Coffee and Cocoa Council (CCC) — will not allow cocoa bean grinders in that country to build stocks beyond authorized limits during the October-March main crop harvest to improve supply access for exporters. Both exporters and local grinders have a purchasing limit equal to their export contracts, but local grinders typically are allowed to stockpile additional beans for 45 days of operations to avoid interruptions. The CCC rescinded the additional 45-day stockpile exemption and is limiting local grinders to buy only enough beans to meet contract obligations.

But one analyst for a major chocolate manufacturer suggests Ivory Coast production may be down only about 10%, with smuggling of beans to neighboring countries accounting for the additional decline. Those smuggled beans will find their way to export markets, counted in the neighboring country’s outturn, and may also have contributed to slow port deliveries in the Ivory Coast in October. Neighboring countries raised the price paid to growers more than did the Ivory Coast for 2023-24, which encourages smuggling.

A global cocoa bean deficit of around 100,000 tonnes in 2022-23 (about 2% of global production) per the International Cocoa Organization doesn’t justify record-high futures prices, especially amid flat to declining cocoa demand, the analyst said.

Expectations are record-high cocoa bean prices will result in demand destruction for cocoa and cocoa products. That’s been indicated in United States sales data, but debate continues about the impact globally.

Third-quarter North American grind was down 18% from the same period a year ago, supporting ideas of waning demand. But European third-quarter grind was down only 0.9%, well above trade expectations, and Asian grind was down just more than 8%, also better than expected. Global cocoa grind in 2022-23 was about flat with 2021-22.

The July-September period is the strongest grind quarter of the year ahead of Halloween and the winter holidays and tends to set the tone for the market. Lighter grind in the third quarter doesn’t bode well for the industry going forward, the analyst said.

Data from Circana show US chocolate candy sales volume (pounds versus units) declining at an increasing rate year-over-year in August, September and October. The declines support the lower North American third-quarter grind numbers. Dollar sales have weakened but remained positive because major manufacturers have raised prices.

Cocoa product prices (butter, powder, liquor) in the US have changed little recently despite the fireworks in the cocoa bean futures market, partly due to increased product imports from origin countries rather than importing beans for processing in North America.

Further confusing market players are indications buyers of cocoa products (including cocoa powder) have lighter forward coverage than has been typical in recent years. The lack of buying may have provided some offset to supply concerns, limiting cocoa bean futures price gains (if record-high prices could be considered limited). Or was the delayed buying part of the reason behind lower cocoa bean grind? Those buyers will need to come back into the market at some point, which may support high prices for a longer period.