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Cocoa and coffee prices have risen to record levels. What will happen in the future?

2024-04-05 11:23:24Kosova&Bota SHKRUAR NGA REDAKSIA VOX

Cocoa and coffee prices have risen to record levels. What will happen in the

Citi says a record rise in cocoa and coffee prices may still have room to follow, citing unfavorable weather conditions and demand expectations. In New York, ICE cocoa futures traded 1.6% lower at $9,370 a metric ton on Thursday. The contract, which recently crossed the $10,000 mark for the first time, is up more than 120% so far this year.

Citi expects cocoa trading to stabilize in a range between $9,000 and $10,000 per metric ton over the next three to four weeks. Beyond that, analysts at the Wall Street bank said in a research note Wednesday that it sees "two-sided financial market risks" in the second half of the year and that the May-June period "could represent a turning point in cocoa." cycle of the bull.”

Citi said cocoa grinds, which result from processing the bean and are a measure of demand, will be a key factor likely to determine whether prices see any further growth. Citi said a significant contraction in first-quarter milling data and a drop in origin processing could be enough to soften cocoa markets in New York and London by as much as 25% to the $7,000 to $7,500 range.

“But if cocoa grinding eases only slightly (as was the case in 4Q'23) and industry statements imply limited consumer contraction, then traders could quickly target $11,000-12,000/t,” analysts at the bank said. Overall, Citi says it remains "slightly bearish" on cocoa prices through the end of the year and further into calendar year 2025.

Difficult weather conditions and disease have affected production in West Africa, which supplies about 70% of the world's cocoa. The two biggest producers, Ivory Coast and Ghana, were recently hit by a combination of heavy rain, dry heat and disease. El Niño-related drought in much of Southeast Asia, India, Australia and parts of Africa has supported a rise in prices for soft commodities such as sugar, coffee and cocoa in recent months, Netherlands-based Rabobank said in its annual outlook for 2024.

The El Niño phenomenon, which returned last year, is a natural climate pattern that occurs when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. It could pave the way for more storms and droughts.

In its outlook for coffee, Citi said prices could rise in both the short and medium term. Arabica coffee futures for May delivery climbed above the key barrier of $2 a pound on Wednesday, marking a new high for the year. The contract was last seen trading 1.8% higher at $2.07 on Thursday. “The current move can be largely attributed to a heat wave in Vietnam affecting Robusta coffee production and as a result, providing carry support for premium Arabica beans,” said Aakash Doshi, senior commodities strategist at Citi, in a research note published on Thursday.

Citi said recent price action had exceeded its short-term target of $1.85 and the team was now prepared for a short-term rise to $2.1 to $2.2 due to adverse weather conditions and flows further financial, among other market signals. The bank said it expects Arabica coffee futures to trade in a range between $1.88 and $2.15 through calendar year 2024, adding that it is willing to raise its forecasts further if the physical outlook tightens.


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