Cocoa Prices Decline Amid Rising Inventories and Global Surplus Forecasts
On Tuesday, May ICE NY cocoa (CCK25) closed down by -128 (-1.52%), while May ICE London cocoa #7 (CAK25) fell -125 (-1.91%). The cocoa market faced moderate losses as inventories showed signs of recovery.
Inventory Trends Impact Cocoa Market
Recent data indicate that cocoa inventories monitored by ICE in U.S. ports have rebounded to a 3-1/4 month high of 1,530,893 bags, rising from a 21-year low of 1,263,493 bags on January 24. This surge weighs heavily on cocoa prices.
Currency Strength Adds Pressure
Losses in London cocoa accelerated as the British pound (^GBPUSD) rose to a 4-month high, making cocoa, which is priced in sterling, less competitive internationally.
Supply Outlook Shifts Global Market Dynamics
Over the past two weeks, cocoa prices suffered, reaching 3-1/2 month lows after a favorable supply outlook emerged. On February 28, the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 metric tons (MT) for the 2024/25 season, marking the first surplus in four years. The ICCO also estimated a 7.8% year-over-year increase in global cocoa production to 4.84 million MT for that period.
Export Trends from Ivory Coast and Nigeria
Despite these forecasts, concerns about slowing cocoa exports from the Ivory Coast provided some price support. Government data revealed that Ivory Coast farmers shipped 1.40 million MT of cocoa from October 1 to March 9, a 15% increase from last year, although this is a drop compared to the 35% increase reported in December. Conversely, Nigeria, the fifth-largest cocoa producer, reported a 27% year-over-year rise in January cocoa exports to 46,970 MT.
Diminished Demand Affects Price Stability
Editions of the industry are expressing concern about weakening chocolate demand caused by high cocoa prices. Executives from Hershey and Mondelez indicated that increased prices are adversely affecting consumption. On February 4, Mondelez CFO Zarmella noted, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.” Furthermore, the company warned on February 18 of potential chocolate price increases of as much as 50% due to rising cocoa costs, which could further depress demand. Hershey’s executives similarly mentioned on February 6 that high cocoa prices are leading them to reformulate recipes to replace cocoa with other ingredients.
Grinding Reports Indicate Lower Demand
Q4 data further underscores declining demand. The European Cocoa Association announced on January 9 that cocoa grindings in Europe fell by 5.3% year-over-year to 331,853 MT, the lowest figure seen in more than four years. The Cocoa Association of Asia reported a minor decline of 0.5% year-over-year to 210,111 MT in Q4, also marking a four-year low. In North America, the National Confectioners Association noted a year-over-year drop of 1.2% to 102,761 MT in Q4 cocoa bean grindings.
Cocoa Production Forecasts Suggest Supportive Factors
Future cocoa prices may benefit from reduced supply from Ghana, the world’s second-largest producer. Cocobod, Ghana’s regulatory body, has adjusted its harvest forecast for 2024/25 down to 617,500 MT, a 5% decrease from the previous estimate of 650,000 MT made in August.
Global Production Declines Highlight Market Challenges
The ICCO’s report on February 28 indicated the 2023/24 global cocoa deficit reached -441,000 MT, the largest in over six decades. Production dropped by 13.1% year-over-year to 4.380 million MT, with the cocoa stocks/grindings ratio at an unprecedented low of 27.0%, the lowest in 46 years.
On the date of publication, Rich Asplund did not have any positions in any of the securities mentioned in this article. All information and data in this article are provided solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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