Key information
- Cocoa prices hit their highest level in three months, at around $8,500 per tonne, due to uncertainty over the European Union's deforestation regulation.
- Last-minute amendments introduced by the European People's Party created exemptions for counties, casting doubt on the implementation of the landmark legislation.
- Uncertainty surrounding the European Union's deforestation regulation is contributing to a sharp rise in cocoa prices, along with factors such as forecasts of reduced harvests, concerns over the quality of cocoa beans and stocks of cocoa. extremely low warehouse.
Cocoa prices hit a three-month high above $8,500 per tonne on futures trading platforms, mainly due to uncertainty over the European Union's cocoa regulation. deforestation (EUDR). Last week saw a significant development in the EUDR vote, with last-minute amendments introduced by the European People's Party (EPP) creating exemptions for the county.
This maneuver cast doubt on the implementation of this historic legislation, as the EPP called for the inclusion of “risk-free” nations. Environmental advocates argue that such a designation is virtually unfeasible and significantly weakens the intended impact of the regulation. The result has been a sharp increase in cocoa prices of 20 percent in recent weeks.
Industry reaction to EUDR uncertainty
Other factors contributing to this price surge include active fund participation, reduced harvest forecasts due to heavy rains, concerns over the quality of cocoa beans and extremely low warehouse stocks. With six weeks until the end of 2024, EUDR continues to create uncertainty within the industry. The initial agreement, signed more than 18 months ago, must be finalized before December 31, 2024.
Market outlook and potential implications
Despite this delay, industry experts maintain a bullish outlook for the cocoa market due to tight supply and persistent demand. Any unforeseen events, such as the outbreak of diseases, could further worsen the market deficit. The current situation requires restocking from the current main harvests (October-March) to avoid potential shortages, given extremely low stocks in Europe and the United States.
As processed cocoa statistics for the third quarter indicate solid demand with only five months of coverage, pressure is mounting on the sector to secure additional cocoa supplies. Therefore, the short and long term forecast for the cocoa market remains bullish, due to EUDR uncertainty, fund participation, reduced harvest forecasts and low warehouse stocks, despite early replenishment of the main harvest.
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