Cocoa Prices Fall Amid Supply Surplus and Regulatory Delays

Market Movements: December ICE NY cocoa (CCZ24) dropped -203 (-2.36%), while December ICE London cocoa #7 (CAZ24) fell -115 (-1.62%) on Monday.

Cocoa prices experienced a small decline on Monday, primarily due to long liquidation and easing concerns about European Union deforestation regulations. The Intercontinental Exchange announced it would postpone planned changes in its coffee and cocoa contracts until the end of 2025, responding to ongoing uncertainty surrounding these regulations. Just last Friday, NY cocoa reached a two-month high, and London cocoa hit a four-month peak, driven by fears that newly proposed regulations could limit supplies from countries where deforestation is a concern.

Another factor contributing to the decline in cocoa prices is the increase in supply from the Ivory Coast, the top cocoa producer globally. Recent government data revealed that Ivory Coast farmers sent 548,494 metric tons of cocoa to ports from October 1 to November 17—this is a 32% rise compared to the same period last year, which had 415,523 metric tons. Additionally, the Ivory Coast’s regulatory body, Le Conseil Cafe-Cacao, raised its cocoa production estimate for 2024/25 to between 2.1 and 2.2 million metric tons, up from a forecast of 2.0 million metric tons in June.

Despite the overall bearish trend, recent adverse weather conditions in West Africa have offered some support to cocoa prices. Maxar Technologies reported that parts of Ghana and Nigeria are currently experiencing hot and dry weather, which could negatively influence the upcoming cocoa mid-crop starting in April. Furthermore, heavy rainfall in the Ivory Coast has caused flooding, increasing the risk of disease and lowering crop quality. Newly harvested beans from the Ivory Coast have shown lower quality, with around 105 beans per 100 grams, whereas the highest quality beans are generally between 80 to 100 beans per 100 grams.

Global cocoa stockpiles are dwindling, which tends to push prices higher. Cocoa inventories monitored by ICE in U.S. ports have decreased for the past 17 months, hitting a 19-year low of 1,656,818 bags last Friday.

In terms of demand, recent reports paint a mixed picture. The National Confectioners Association noted a 12% year-over-year increase in North America’s Q3 cocoa grindings, totaling 109,264 metric tons. Similarly, the Cocoa Association of Asia reported a 2.6% rise in Q3 cocoa grindings to 216,998 metric tons. Conversely, the European Cocoa Association disclosed that Q3 cocoa grindings in Europe fell by 3.3% year-over-year to 354,335 metric tons.

Support for cocoa prices was also observed following Ghana’s Cocoa Board (Cocobod) revising down its 2024/25 production estimate to 650,000 metric tons from a previous forecast of 700,000 metric tons on August 20. Poor weather and crop diseases have led to a significant drop, with Ghana’s 2023/24 cocoa harvest falling to a 23-year low of 425,000 metric tons. As the world’s second-largest cocoa producer, Ghana’s 2024/25 cocoa harvest is set to begin in October.

Conversely, production increases in Cameroon, the fifth-largest cocoa producer, present another bearish signal. On August 21, the National Cocoa and Coffee Board of Cameroon announced that its cocoa production was up by 1.2% year-over-year, reaching 266,725 metric tons. Additionally, Nigeria’s cocoa exports rose by 6.8% year-over-year, reaching 14,984 metric tons in August, reflecting Nigeria’s status as the world’s sixth-largest cocoa producer.

On a more optimistic note, the International Cocoa Association (ICCO) raised its 2023/24 global cocoa deficit estimate on August 30, now forecasting a shortfall of -462,000 metric tons compared to May’s prediction of -439,000 metric tons. This represents the largest deficit in over 60 years. The ICCO also adjusted its production estimate down to 4.330 million metric tons from 4.461 million metric tons in May, predicting a stocks-to-grindings ratio at a 46-year low of 27.4%.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.