Cocoa and coffee prices have soared to record highs — and Citi says there may still be room to run

Citi
says
a
record-breaking
rally
for
cocoa
and
coffee
prices
could
yet
have
further
room
to
run,
citing
adverse
weather
conditions
and
demand
expectations.

In
New
York,


benchmark
ICE
cocoa
futures
traded
1.6%
lower
at
$9,370
per
metric
ton
on
Thursday.
The
contract,
which

recently
surpassed
the
$10,000
threshold
for
the
first
time,
has
surged
more
than
120%
so
far
this
year.

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

Beyond
that,
analysts
at
the
Wall
Street
bank
said
in
a
research
note
out
on
Wednesday
that
it
sees “two-way
financial
market
risks”
in
the
second
half
the
year
—
and
that
the
May
to
June
period “could
represent
a
turning
point
in
the
cocoa
bull
cycle.”

Citi
said
cocoa
grindings,
which
result
from
bean
processing
and
are
a
measure
of
demand,
will
be
one
key
factor
likely
to
determine
whether
prices
have
any
further
upside.

Citi
said
a
significant
contraction
in
first-quarter
grindings
data
and
a
drop
in
origin
processing
might
suffice
for
New
York
and
London
cocoa
markets
to
unwind
by
up
to
25%
to
the
$7,000
to
$7,500
range.

“But
if
cocoa
grindings
only
marginally
subside
(as
was
the
case
in
4Q’23)
and
industry
statements
imply
limited
consumer
pushback,
then
traders
could
quickly
target
$11,000-12,000/t,”
analysts
at
the
bank
said.

Overall,
Citi
says
it
remains “mildly
bearish”
on
cocoa
prices
through
to
year-end
and
more
so
in
the
2025
calendar
year.

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

El
Niño-related
dryness
in
much
of
Southeast
Asia,
India,
Australia
and
parts
of
Africa
has
supported
a
price
rally
for
soft
commodities
such
as
sugar,
coffee
and
cocoa
in
recent
months,
the
Netherlands-based Rabobank

said
in
its
annual
outlook
for
2024.

The
El
Niño
phenomenon,
which
returned
last
year,
is
a
naturally
occurring
climate
pattern
that
takes
place
when
sea
temperatures
in
the
eastern
Pacific
rise
0.5
degrees
Celsius
above
the
long-term
average.
It
can
pave
the
way
to
more
storms
and
droughts.

In
its
outlook
for
coffee,
Citi
said
prices
could
rally
in
both
the
short
and
medium
term.

Arabica
coffee
futures
with
May
delivery
climbed
above
the
key
barrier
of
$2
per
pound
on
Wednesday,
notching
a
new
high
for
the
year.
The
contract
was
last
seen
trading
1.8%
higher
at
$2.07
on
Thursday.

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

Citi
said
recent
price
action
had
exceeded
its
short-term
target
of
$1.85
and
the
team
was
now
poised
for
a
near-term
rally
up
to
between
$2.1
and
$2.2
on
the
back
of
adverse
weather
conditions
and
further
financial
inflows,
among
other
market
signals.

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

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