- Cocoa contracts in New York and London fell to their lowest levels in about 1.75 years.
- The main driver behind the declines was the news that EU rules restricting imports from areas affected by deforestation had been postponed.
- The market is also reacting to promising harvest forecasts in West Africa.
Delay of EU regulations and impact on quotations
The cocoa market recorded sharp declines after European Union countries proposed to postpone by one year the regulations on restricting imports of products from areas affected by deforestation. The regulations were intended to cover cocoa, among other products, and their implementation could significantly reduce the availability of the raw material for European importers. The postponement, however, changed the risk assessment and led investors to assume greater supply in the coming season, pushing prices sharply downwards.
This change in attitude has led to prices sliding to their lowest levels in about 1.75 years in both the US and European markets. This reaction shows how strongly the commodity market is affected by regulatory decisions, especially when they affect major global importers.
Better crop forecasts and weak consumption
An additional pressure factor has been the optimistic harvest forecasts in West Africa, primarily in Côte d’Ivoire and Ghana. Weather conditions are favourable for the growth of cocoa trees and this is raising expectations for higher supplies in the new season.
At the same time, a weakening of global cocoa consumption is noticeable. Asia and Europe are reporting lower levels of bean processing, indicating less use of the raw material by the industry. Also, data from the United States signal weak chocolate sales, exacerbating the pressure on demand.
Despite these negative factors, cocoa stocks monitored by ICE continue to remain at low levels. This means that the market remains sensitive to possible supply disruptions and the limited availability of stocks may inhibit further price declines in the future.
