Cocoa and coffee prices have soared to record highs — and Citi says there may still be room to run

Cocoa and coffee prices have soared to record highs — and Citi says there may still be room to run

A worker picks cocoa fruit at the Somos Cacao farm in Ragonvalia, Norte de Santader department, Colombia, on Friday, March 22, 2024.

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Citi says a record-breaking rally for cocoa and coffee prices could yet have further room to run, citing adverse weather conditions and demand expectations.

In New York, benchmark ICE cocoa futures traded 1.6% lower at $9,370 per metric ton on Thursday. The contract, which recently surpassed the $10,000 threshold for the first time, has surged more than 120% so far this year.

Citi expects cocoa trading to stabilize in a range between $9,000 to $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 out on Wednesday that it sees “two-way financial market risks” in the second half the year — and that the May to June period “could represent a turning point in the cocoa bull cycle.”

Citi said cocoa grindings, which result from bean processing and are a measure of demand, will be one key factor likely to determine whether prices have any further upside.

Citi said a significant contraction in first-quarter grindings data and a drop in origin processing might suffice for New York and London cocoa markets to unwind by up to 25% to the $7,000 to $7,500 range.

“But if cocoa grindings only marginally subside (as was the case in 4Q’23) and industry statements imply limited consumer pushback, then traders could quickly target $11,000-12,000/t,” analysts at the bank said.

Overall, Citi says it remains “mildly bearish” on cocoa prices through to year-end and more so in the 2025 calendar year.

Gary Chau holds fresh beans at the roastery and headquarters for Caffe Luxxe in Gardena on Thursday, March 28, 2024. The South Bay based Caffe Luxxe, a third-wave independent coffee shop has opened a new Manhattan Beach location.

Medianews Group/long Beach Press-telegram Via Getty Images | Medianews Group | Getty Images

Difficult weather conditions and disease have affected production in West Africa, which supplies about 70% of the world’s cocoa. The two largest producers, Ivory Coast and Ghana, were recently hit by a combination of heavy rain, dry heat and disease.

El Niño-related dryness in much of Southeast Asia, India, Australia and parts of Africa has supported a price rally for soft commodities such as sugar, coffee and cocoa in recent months, the Netherlands-based Rabobank said in its annual outlook for 2024.

The El Niño phenomenon, which returned last year, is a naturally occurring climate pattern that takes place when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. It can pave the way to more storms and droughts.

What about coffee?

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