After a bottom in early July, cocoa prices have relentlessly pushed higher into the end of the month. Several factors contributed to this rise. As we mentioned in an earlier blog, parts of the Ivory Coast have received too much rainfall. The image below indicates the percent of normal rainfall that has occured for July. Notice the bullseye near San Pedro, IC (200%-400%, arrow). Too much rain can limit the output of the cocoa crop. Floods destroy flowers and small pods during the first stages of development. Another worry is that the beans will rot if humidity levels remain high. Lately, crop areas in Nigeria have also received too much rain, leading to concerns of fungi spreading.
One potential source of the enhanced rainfall is the currently very warm Tropical South Atlantic (TSA) index. This sea surface temperature area helps feed moisture into the West African region during the wet season. Another cause could be the weakening of El Nino, preventing the typical lower rainfall in the late summer and fall in El Nino years.
Higher Demand in Cocoa
With cocoa prices at 5 year lows during the last quarter, Hershey’s was able to capitalize. They recently had a 39% quarterly profit rise. This (and the European Cocoa Association report of 2.1% increase in 2nd quarter grindings from last year) has supported prices throughout July by indicating increased demand.