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Cocoa Prices Go Nuts, Coffee Might Follow Suit Soon

Published 04/03/2024, 05:57 PM
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  • Cocoa prices have surged globally, testing the $10,000 per ton level due to unfavorable weather conditions in key cocoa-producing regions like West Africa.
  • The bullish trend extends to coffee prices, driven by strong demand and adverse weather in countries like Brazil and Vietnam, major players in the global coffee market.
  • Therefore, there could be opportunities to go long in either of these commodities based on the technical setup.
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  • Cocoa prices have surged since the start of the year, recently crossing the significant $10,000 per ton mark. Unfavorable weather conditions, particularly in key cocoa-producing regions like West Africa, are driving this trend.

    If the situation doesn't improve soon, cocoa prices will likely continue to rise. A similar bullish trend persists with coffee prices, where demand has been strong since last October.

    Weather is a major factor here too, especially in countries like Brazil and Vietnam, which are significant players in the global coffee market.

    In response to the soaring cocoa prices, Côte d'Ivoire, the world's largest cocoa producer, is expected to approve a 50% increase in the price of cocoa to 1,500 CFA francs per kilogram (approximately $2.47).

    The challenging weather conditions in West African countries along the Gulf of Guinea, including Ghana and Cameroon, exacerbate the situation. This is the third consecutive year of persistent shortages.

    Excessive rains leading to fruit rot, coupled with prolonged periods of high temperatures exceeding 30 degrees Celsius causing drought and reduced yields, are the primary reasons behind these shortages.

    Additionally, strong winds carrying dust hinder proper crop development by blocking access to sunlight.

    Compared to previous decades, current cocoa price levels are at record highs, making it difficult to determine any reasonable price ceiling.

    Cocoa Prices Monthly Chart

    Brazil, Ecuador to Ramp Up Production Too?

    Increasing the supply from other regions like Brazil or Ecuador could help stabilize the situation and slow down the price changes. However, ramping up production is a long-term investment, and we may not see the effects for a few years.

    The concentration of harvest areas in specific locations raises the risk of ongoing shortages. As a result, we may soon experience higher prices for basic confectionery products in stores.

    Coffee Technical View: Prices Set to Burst Higher?

    Extreme weather conditions in Brazil and Vietnam, major coffee producers, are driving up coffee prices. May contracts show an increase of over 5%, particularly for Robusta coffee, which is up by nearly 30%.

    This surge is due to adverse weather affecting coffee production. Currently, coffee prices have been moving sideways since the start of the year. Buyers are now testing the upper limit around the $200 mark.

    Coffee Futures Daily

    If the bulls successfully surpass the indicated limitation, which appears to be the target scenario, the next goal will be to reach the clearly defined supply zone around $215.

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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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