Adapting to the Global Cocoa Market Dynamics

Africa produces approximately 70% of the world’s cocoa and remains the leading region in global cocoa production. Among the top producers, Côte d'Ivoire, Ghana, Cameroon, and Nigeria play pivotal roles. Nigeria, in particular, holds a significant market share as one of the largest cocoa producers, contributing to both regional and global supply. In recent months, global cocoa markets have experienced significant volatility. Key factors driving these trends include climate change impacts, shifts in trade policies, and other economic factors. Cocoa beans, a staple in Cardinal Torch's portfolio, has seen price fluctuations due to climate change affecting major producing regions like West Africa.

These factors have created a challenging environment for businesses operating in the cocoa market. For many companies like Cardinal Torch what operate in supply side of the cocoa value chain, this volatility has eroded working capital, as the unpredictable fluctuations in terminal prices have made it difficult to maintain stable financial footing. The surge in cocoa futures prices, driven by these market dynamics, has pushed costs higher and squeezed margins.

Here are some key data trends for Q1 2024 that we find particularly noteworthy:

•   Climate Change: West Africa experienced significant weather problems due to climate change, including extended dry spells and heavy rains, leading to the spread of black pod disease. These conditions severely impacted cocoa yields and resulted in a shortage in supply, contributing to the rise in cocoa prices.
•  Cocoa Prices: Cocoa futures prices increased in Q1 2024 due to poor crops in West Africa, leading to a surge in the London and New York cocoa exchanges. This has resulted in the erosion of working capital, with gains in terminal prices and the British pound (GBP) soaring higher.
• Global Consumption: Global cocoa consumption increased in Q1 2024, with strong demand reflected in rising grindings across all regions. This increase in demand has transferred the effect to final consumers, leading to higher prices for chocolate and related products.
• Certified Cocoa: Certified cocoa prices are generally higher than conventional cocoa due to the additional costs associated with certification processes and the premium consumers are willing to pay for sustainably sourced products.
•  Nigeria's Market Conditions: In addition to the global trends, Nigeria has faced unique challenges. The exchange rate has surged from 700 Naira to 1,600 Naira per US dollar as at Q2. 2024, increasing the cost of production and impacting overall market dynamics. The removal of fuel subsidies, have also seen transportation rise significantly, further straining the supply chain and contributing to the higher costs of cocoa production and distribution.

The international chocolate and beverage markets have also felt the impact. With rising cocoa prices, end users are now facing increased costs, which are gradually being passed down the supply chain. As the largest producers, including Nigeria, grapple with these market conditions, the effects are being transferred to consumers worldwide, who are experiencing price increases for their favorite products. The shortage in supply caused by climate change and diseases has further strained the market, intensifying the pressure on prices.

At Cardinal Torch, we are well-positioned to leverage these trends. Our trading team excels at connecting market changes with real-world impacts and market reactions. Our in-depth insights into how various factors interact to influence the market and how global and regional trends affect pricing and consumption are used to enhance our trading strategies and decision-making processes. By utilizing advanced market analysis tools and nurturing strong relationships with our stakeholders, we remain agile and responsive to market changes.

Additionally, our funding partners have been instrumental in helping us adjust to the situation. Their support has not only allowed us to mitigate the effects of market volatility but has also enabled us to maintain year-on-year growth in supply capacity despite the over 1,000% increase in produce price per ton. By leveraging these partnerships, we have been able to implement strategies that ensure continued growth and stability. Our commitment to responsible sourcing and supply chain transparency further strengthens our position in navigating the ongoing challenges in the global cocoa market.