Cocoa Prices Just Received Another, Man-made, Boost from the European Parliament

Cocoa prices rose sharply on Thursday and Friday, November 14–15, hitting a 7-week high in New York and a 4-month high in London. The gains have been triggered by a number of factors, further aggravating the already shrinking cocoa supplies. New concerns arrived after the European Parliament followed a big call from environmentalists and voted to tighten deforestation rules, which could limit the supply of agriculturals, including cocoa, from countries experiencing accelerated deforestation. The European Union Deforestation Regulation (EUDR) requires companies to ensure that products imported into the EU are not produced in areas that have been deforested or degraded after 2020.

Cocoa prices rose sharply this week also due to more traditional factors — namely, weather abnormalities in West Africa, the place where over two-thirds of global cocoa exports originate from. Parts of Ghana and Nigeria are experiencing dry and hot weather. In addition, recent heavy rains in Cote d'Ivoire have flooded fields, increasing the risk of disease and affecting crop quality.

Reduced global cocoa supplies are a positive price driver. Cocoa stocks at U.S. ports monitored by ICE have been declining for the past 17 months and fell to 1,667,279 bags in the middle of this month, reaching the lowest level in 19 years.