Cocoa Prices Rise as Supply Outlook Improves, Demand Concerns Remain

On Wednesday, May ICE NY cocoa (CCK25) closed up +49 (+0.61%), while May ICE London cocoa #7 (CAK25) increased by +69 (+1.12%). These changes mark a moderate uptick in cocoa prices as they consolidated above previous lows.

The gains in London cocoa were notably accelerated when the British pound (^GBPUSD) dropped to a two-week low, positively impacting cocoa prices that are denominated in sterling.

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Cocoa prices have struggled recently, hitting a 4-1/4 month low last Friday, primarily due to a better supply outlook. On February 28, the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 metric tons (MT) for 2024/25, marking the first surplus in four years. Additionally, ICCO estimates that global cocoa production will increase by +7.8% year over year to reach 4.84 million metric tons.

The rise in cocoa inventories is also exerting downward pressure on prices. ICE-monitored cocoa inventories in U.S. ports, which fell to a 21-year low of 1,263,493 bags on January 24, experienced a rebound up to 1,790,262 bags as of Wednesday, a level not seen in nearly five months.

Despite these pressures, concerns regarding the upcoming mid-crop in the Ivory Coast are providing some support for cocoa prices. The mid-crop, which typically begins in April and is the smaller of the two annual cocoa harvests, is estimated at 400,000 MT—9% lower than last year’s total of 440,000 MT.

Moreover, the pace of cocoa exports from the Ivory Coast has slowed, which may help stabilize prices. Government data released on Monday indicated that the country shipped 1.43 million MT of cocoa from October 1 to March 23, reflecting a +12% increase from the previous year, although the growth rate has decreased from a remarkable 35% rise reported in December.

Ongoing demand concerns continue to weigh on cocoa prices. Executives from major chocolate manufacturers like Hershey and Mondelez have expressed worries that high cocoa prices are negatively impacting consumption. On February 4, Mondelez CFO Zarmella noted signs of decreasing cocoa consumption in regions like North America. This trend was further underscored on February 18 when the company warned that chocolate prices may increase by as much as 50% due to rising cocoa costs, which could further dampen demand. Hershey’s management echoed these sentiments on February 6, revealing that elevated cocoa prices are necessitating changes in product recipes as they seek alternatives.

On a related note, Nigeria reported an impressive +27% year-over-year increase in January cocoa exports, reaching 46,970 MT. This positions Nigeria as the world’s fifth-largest cocoa producer, although rising prices globally continue to present challenges.

Quarterly reports also indicate that high cocoa prices have led to decreased demand. The European Cocoa Association reported on January 9 that Q4 2022 cocoa grindings in Europe fell -5.3% year over year to 331,853 MT, the lowest level seen in over four years. Additionally, the Cocoa Association of Asia reported a slight decrease of -0.5% in Q4 grindings, dropping to 210,111 MT, and the National Confectioners Association showed a -1.2% decline in the North American cocoa bean grindings, totaling 102,761 MT.

Support for cocoa prices may come from lower expected supplies from Ghana, the world’s second-largest cocoa producer. In December, Ghana’s cocoa regulator, Cocobod, revised its 2024/25 harvest forecast down to 617,500 MT, which is a -5% decline from its earlier estimate of 650,000 MT.

The ICCO’s February 28 report indicated a staggering -441,000 MT global cocoa deficit for the 2023/24 season, marking the most significant shortfall in over six decades. According to ICCO, cocoa production for the 2023/24 season declined -13.1% year over year to 4.38 million MT, with the global cocoa stocks to grindings ratio dropping to 27%, a low not seen in 46 years.

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 is solely for informational purposes. For more information please view the Barchart Disclosure Policy.
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