Cocoa Prices Rebound Amid Market Volatility and Supply Concerns

May ICE NY cocoa (CCK25) closed on Wednesday up +692 (+8.92%), while May ICE London cocoa #7 (CAK25) increased by +356 (+6.20%).

The cocoa market showed resilience on Wednesday, recovering from early losses and experiencing a significant rally. The catalyst was a weakness in the dollar (DXY00), which triggered short covering in cocoa futures. Cocoa prices initially dipped, with New York cocoa reaching a 3-week low and London cocoa falling to a 5-month low. Concerns surrounding a global trade war have overshadowed the market, raising fears that escalating tariffs could dampen consumer demand for cocoa and related products.

Last Thursday, NY cocoa prices surged to a 1-1/4 month high due to signs indicating a weak mid-crop cocoa harvest in West Africa. Rabobank pointed to late-arriving rains limiting crop growth, and surveys from cocoa farmers in Ivory Coast and Ghana have returned disappointing results.

Support for cocoa prices is stemming from uncertainties surrounding Ivory Coast’s upcoming mid-crop, which is the smaller of the two annual harvests starting this month. The average estimate for this year’s mid-crop in Ivory Coast stands at 400,000 metric tons (MT), which is a 9% decrease from last year’s 440,000 MT.

In recent weeks, cocoa exports from Ivory Coast have slowed, further supporting prices. Government data from Monday reported that farmers exported 1.44 million MT of cocoa to ports from October 1 to April 6, representing an 11% increase compared to the previous year but a notable decline from the 35% rise observed in December.

Following seven weeks of declines, cocoa prices have found support, although NY cocoa had fallen to a 4-3/4 month low on March 21, influenced by an improved supply outlook. On February 28, the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 MT for the 2024/25 season, marking the first surplus in four years. Additionally, ICCO projects a +7.8% year-on-year increase in global cocoa production for 2024/25, reaching 4.84 million MT.

Increases in cocoa inventories contribute to bearish market sentiment. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa stockpiles in U.S. ports have bounced back, climbing to a 5-1/2 month high of 1,868,177 bags this Wednesday.

Concerns over demand further impact cocoa prices. Executives at Hershey and Mondelez have recently stated that high prices are adversely affecting demand – with Mondelez’s CFO Zarmella noting on February 4 that cocoa consumption is declining in regions including North America. Moreover, on February 18, the company warned that rising cocoa prices could push chocolate prices up by as much as 50%, impacting demand. Hershey also acknowledged on February 6 the necessity of reformulating recipes to replace cocoa with alternative ingredients due to surging prices.

On the bearish side, Nigeria’s cocoa exports saw a notable increase of +27% year-on-year in January, totaling 46,970 MT, affirming its position as the world’s fifth-largest cocoa producer.

High cocoa prices led to decreased demand in Q4, as highlighted by quarterly grinding reports. The European Cocoa Association recorded a -5.3% year-on-year decline in Q4 European cocoa grindings, falling to 331,853 MT, marking the lowest volume in over four years. Similarly, the Cocoa Association of Asia reported a -0.5% year-on-year decrease in Q4 grindings to 210,111 MT, while the National Confectioners Association stated that North American cocoa bean grindings fell -1.2% year-on-year to 102,761 MT.

Concerns about decreased cocoa supplies from Ghana, the world’s second-largest cocoa producer, are also having a supportive effect on prices. Ghana’s cocoa regulator, Cocobod, recently downgraded its 2024/25 cocoa harvest forecast for the second time this season, reducing it to 617,500 MT, down from the earlier estimate of 650,000 MT.

According to ICCO’s February 28 report, the 2023/24 global cocoa deficit stands at -441,000 MT, the largest in over 60 years. Production for 2023/24 is expected to fall -13.1% year-on-year to 4.380 million MT, with the organization’s cocoa stocks to grindings ratio at a 46-year low of 27.0%.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data are for informational purposes only. For more details, please view the Barchart Disclosure Policy
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