The current El Nino registered an Oceanic Nino Index (ONI) of +1.1 during the June-August timeframe, the highest since February-April 2016, and the index is expected to climb well above those levels in the next few months. The latest projections from the US Climate Prediction Center gave a 95% chance that El Nino will last through March and a 77% chance that it will continue through May.
Few may see as widespread impact from this El Nino event than cocoa. The market has been dealing with the second straight global production deficit for 2022/23, and the onset of El Nino threatens to make it a third.
Approximately 70% of global cocoa production comes from West Africa, which normally has drier than normal conditions during El Nino events. The region has also seen recent outbreaks of black pod and swollen shoot diseases due to too much rain this summer and a lack of adequate fertilizer and pesticide usage.
Of the other major producers, Indonesia has already experienced drier than normal conditions, and Ecuador could see heavier than normal rainfall that would spark disease.
Verification that El Nino is bringing drought to west Africa could spark another leg higher. A pullback could provide an opportunity to approach the long side of the market.
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Originally Published September 25, 2023 – More Upside Potential for Cocoa
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