The El Niño-driven bull markets in cocoa and sugar

Two bull markets in soft commodities have been in cocoa and sugar brought on by a variety of summer weather problems from India to Thailand and West Africa.

My cocoa Spider, featured in my WeatherWealth newsletter for about 8 commodities each week, has been basically bullish cocoa since summer. Sometimes it has gone neutral, but overall, we have developed long-term bullish call option spread ideas for summer.

Wet November weather could further compromise cocoa and sugar crops

This time of the year, dry weather is needed for the sugarcane harvest in Thailand (the #3 producer) and in the Ivory Coast and Ghana (top cocoa producers) where the incessant wet weather has caused disease issues all year.

Usually, El Niño can bring wet weather for Thailand in November but typically it dries out in West Africa for the remaining main crop harvest. One such El Niño year that was super wet in Thailand was 1987. The fact that West Africa has remained wet is atypical of El Niño and more so due to warming oceans and Climate Change.

Wet weather in Thailand during November can negatively impact the sugar crop for a few key reasons:

  • Flooding – Heavy November rains in Thailand bring a higher risk of flooding, which damages sugarcane fields and disrupts harvesting.
  • Cloud cover – Increased cloud cover and reduced sunlight slows sugarcane growth during this critical time before the harvest. Photosynthesis is diminished.
  • Disease – Wet conditions promote fungal diseases like red rot, which damages stems and leads to sugar content loss.
  • Delayed harvest – Excess soil moisture makes it harder to operate harvesting equipment on muddy fields. This can delay crop collection.
  • Diluted sucrose – High rainfall right before harvest dilutes the sucrose concentration in stalks, reducing sugar content.
  • Crop loss – Severe floods from monsoons can completely submerge and destroy portions of the sugarcane crop.

Overall, wetter than normal November weather reduces both the quantity and quality of sugarcane yields in Thailand. Dry conditions are needed for optimal sucrose development and timely harvest. Excessive rain has a very detrimental impact on both yields and sugar content for the Thai sugar industry in the critical pre-harvest period.

While adequate rainfall is crucial for cocoa production in Ivory Coast and Ghana, excessive wet weather over months can cause major issues:

  • Prolonged heavy rains increase the prevalence of fungal diseases like black pod rot and myriads. These have caused severe damage to cocoa crops recently in very wet conditions.
  • Overly wet soil makes bean harvesting and drying more difficult. This can delay and disrupt cocoa harvest operations.
  • Persistent moisture also promotes canker and algal bark diseases which damage cocoa tree health and yields.
  • Flooding from heavy rainfall can rot the roots, asphyxiate trees, and reduce yields.
  • Cloudy wet weather slows bean maturation and inhibits optimal flavor development.

So while November rains are important for cocoa pod development, too much rainfall over consecutive months promotes crop diseases, hampers harvest logistics, and reduces bean quality.