Citi on what’s next for cocoa and coffee prices after a record rally

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

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Citi says a record rise in cocoa and coffee prices could still have further room to run, citing unfavorable weather conditions and demand expectations.

At New York, ICE cocoa benchmark futures was trading down 1.6% at $9,370 per metric ton on Thursday. The contract, which recently crossed the $10,000 threshold for the first time, is up more than 120% so far this year.

Citi expects cocoa trading to stabilize in a range between $9,000 and $10,000 per tonne over the next three to four weeks.

Beyond that, Wall Street bank analysts said in a research note released Wednesday that they see “two-way risks in financial markets” in the second half of the year – and that the May-June period “could represent a turning point in the cocoa bull cycle.

Citi said cocoa grinding, which results from processing the beans and is a measure of demand, will be a key factor that could determine whether prices could rise further.

Citi said a significant contraction in first-quarter grinding data and a decline in origin processing could be enough for the New York and London cocoa markets to fall as much as 25% in the 7-year range. 000 to $7,500.

“But if cocoa grindings decline only slightly (as was the case in Q4 2023) and industry statements imply limited consumer reluctance, then traders could quickly target $11,000-$12,000/ t,” the bank’s analysts said.

Overall, Citi says it remains “slightly bearish” on cocoa prices through the end of the year and even more so through the 2025 calendar year.

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

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

El Niño-related drought across much of Southeast Asia, India, Australia and parts of Africa has supported rising prices for commodities such as sugar, coffee and rice. cocoa in recent months, Netherlands-based Rabobank said in its annual outlook for 2024.

El Niño, which reappeared last year, is a natural climate phenomenon that occurs when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. This can pave the way for more storms and droughts.

And the coffee?

In its outlook for coffee, Citi said prices could rise in the short to medium term.

Arabica Coffee Futures Markets with delivery in May, broke the key barrier of $2 per pound on Wednesday, hitting a new high for the year. The contract was last seen up 1.8% at $2.07 on Thursday.

“The current move can be largely attributed to a heatwave in Vietnam affecting Robusta coffee production and therefore providing support for premium Arabica beans,” said Aakash Doshi, senior commodities strategist at Citi, in a research note published Thursday.

Citi said the recent price action has exceeded its short-term target of $1.85 and the team is now poised for a short-term rise to between $2.1 and $2.2 due to adverse weather conditions. and new financial inflows, among other market signals.

The bank said it expects Arabica coffee futures to trade in a range between $1.88 and $2.15 during calendar year 2024, adding that it is ready to further increase its forecasts if the physical outlook tightens.

— CNBC’s Michael Bloom, Spencer Kimball and Fred Imbert contributed to this report.


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