Cocoa Prices Decline Amid Strong Dollar and Rising Inventories

May ICE NY cocoa (CCK25) ended Wednesday down -206 (-2.21%), while May ICE London cocoa #7 (CAK25) closed down -134 (-2.07%).

On Wednesday, cocoa prices retraced early gains and marked moderate losses. A stronger dollar (DXY00) resulted in long liquidation in cocoa futures, contributing to the downturn. Additionally, the recovery in cocoa inventories is bearish for prices. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories at US ports rose to a six-month high of 1,925,933 bags on Wednesday.

Cocoa prices initially showed promise, with NY cocoa reaching a two-and-a-half-month high and London cocoa achieving a two-and-a-half-week high earlier in the day. Recent data revealed that cocoa exports from the Ivory Coast have slowed, which had been supportive for prices. According to Tuesday’s government report, Ivory Coast farmers shipped 1.48 million metric tons (MMT) of cocoa to ports from October 1 to April 20 this marketing year, reflecting an 11.3% increase from the previous year but a decrease from the 35% rise observed in December.

The cocoa market is also benefiting from last week’s news of better-than-expected global cocoa demand. North American cocoa grindings for Q1 fell by only 2.5% year-over-year to 110,278 MT, which outperformed expectations of at least a 5% decline. Similarly, Q1 European cocoa grindings decreased by 3.7% year-over-year to 353,522 MT, marking a smaller dip than anticipated. In Asia, Q1 cocoa grinding dropped by 3.4% year-over-year to 213,898 MT, a better result than the expected 5% decline.

Furthermore, concerns regarding the upcoming mid-crop in the Ivory Coast are providing support for cocoa prices. On April 3, NY cocoa climbed to a two-month high due to indications of a weak mid-crop harvest in West Africa. Rabobank reported that late-arriving rains have hampered crop growth, with recent farmer surveys from Ivory Coast and Ghana yielding disappointing results. This mid-crop, which is the smaller of the two annual cocoa harvests and normally starts this month, is expected to produce around 400,000 MT, which is a 9% decline from last year’s output of 440,000 MT.

Earlier in April, NY cocoa fell to a one-month low, while London cocoa dropped to a five-month low amidst concerns of a decline in consumer demand for cocoa and cocoa products—issues compounded by increasing trade tensions and tariffs on already high cocoa prices. On April 10, Barry Callebaut AG, a leading chocolate manufacturer, reduced its annual sales guidance due to high cocoa prices and tariff uncertainties.

Worsening supply outlooks are bearish for cocoa prices. The International Cocoa Organization (ICCO) projected a global surplus of 142,000 MT in 2024/25, marking the first surplus in four years. The ICCO also anticipated that cocoa production would increase by 7.8% year-over-year, reaching 4.84 MMT in the same period.

Moreover, demand concerns are putting additional pressure on cocoa prices. Executives from Hershey and Mondelez recently noted that heightened prices are negatively influencing demand. For example, Mondelez’s CFO pointed out on February 4 that signs of reduced cocoa consumption were apparent, particularly in North America. The company also warned that chocolate prices might surge by as much as 50% due to rising cocoa prices, which would likely diminish chocolate demand. Hershey’s executives mentioned on February 6 that high cocoa costs are compelling the company to reformulate recipes by substituting cocoa with alternative ingredients.

Finally, tighter cocoa supplies from Ghana, the second-largest cocoa producer, are unexpectedly supportive for prices. In December, Cocobod, Ghana’s cocoa regulatory authority, adjusted its 2024/25 harvest forecast downward for the second time this season, lowering it to 617,500 MT—5% lower than an earlier estimate of 650,000 MT.

The ICCO reported on February 28 that the 2023/24 global cocoa deficit reached -441,000 MT, the largest shortfall in over six decades. It also indicated that cocoa production for this period decreased by 13.1% year-over-year to 4.380 MMT. The organization’s report showed a cocoa stocks-to-grindings ratio of 27.0%, the lowest 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.

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