Cocoa Prices Rebound as Market Reacts to Surplus Forecasts
May ICE NY cocoa (CCK25) closed Tuesday up +164 (+2.00%), and May ICE London cocoa #7 (CAK25) finished up +32 (+0.49%).
Cocoa prices saw a recovery on Tuesday after hitting a 3-1/2 month low. This uptick followed a decline in the dollar index, which fell to a 2-3/4 month low and triggered some short covering in cocoa futures. However, gains in London cocoa remained limited as the British pound (^GBPUSD) rose to a 2-1/2 month high, impacting cocoa prices that are denominated in sterling.
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Cocoa prices have struggled since last Friday when the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 MT for the 2024/25 season. This marks the first anticipated surplus in four years. The ICCO also noted that global cocoa production is expected to rise by +7.8% year-on-year, reaching 4.84 million metric tons.
On the bearish side of the market, Nigeria reported a significant rise in cocoa exports last Thursday, up +27% year-on-year to 46,970 MT. Nigeria ranks as the world’s fifth-largest cocoa producer, adding pressure to prices.
Concerns about demand are also weighing on cocoa prices. Executives from major chocolate manufacturers like Hershey and Mondelez have cautioned that high cocoa prices are dampening consumer demand. On February 4, Mondelez’s CFO Zarmella indicated a slowdown in chocolate demand, stating, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.” Additionally, on February 18, Mondelez warned that chocolate prices could rise as much as 50% due to the surge in cocoa prices, which would likely further reduce demand.
Similarly, executives from Hershey mentioned on February 6 that high cocoa prices are prompting them to reformulate recipes by replacing cocoa with alternative ingredients.
Quarterly grinding reports show the impact of high cocoa prices on demand. According to the European Cocoa Association, Q4 European cocoa grindings dropped by -5.3% year-on-year to 331,853 MT, the lowest level in over four years. Concurrently, the Cocoa Association of Asia reported a decline of -0.5% year-on-year in Q4 grindings to 210,111 MT, also a four-year low. Meanwhile, the National Confectioners Association disclosed that Q4 North American cocoa bean grindings fell by -1.2% year-on-year to 102,761 MT.
Restrictions on cocoa exports from the Ivory Coast have provided some support for cocoa prices. As of today, government data indicates that Ivory Coast farmers shipped 1.39 MMT of cocoa to ports this marketing year from October 1 to March 2, reflecting a +17% increase from last year. However, this pace has decreased from a 35% rise noted in December.
Tight global cocoa inventories also favor higher prices. ICE-monitored cocoa inventories at U.S. ports have been declining for the past 1-1/2 years and recently fell to a 21-year low of 1,263,493 bags on January 24. As of Monday, inventories have rebounded to a 2-3/4 month high of 1,463,836 bags.
Additionally, the cocoa supply from Ghana, the world’s second-largest cocoa producer, is also expected to be lower. Cocobod, Ghana’s cocoa regulator, has revised its 2024/25 cocoa harvest forecast downwards for the second time this season to 617,500 MT, a -5% reduction from the August estimate of 650,000 MT.
In a broader context, the ICCO reported last Friday that the 2023/24 global cocoa deficit is projected at -441,000 MT, the largest deficit observed in over 60 years. The ICCO attributes this shortfall to a -13.1% year-on-year decline in cocoa production, totaling 4.38 MMT. Moreover, the ICCO reported that the global cocoa stocks to grindings ratio has dwindled to 27.0%, marking a 46-year low.
On the date of publication, Rich Asplund did not have any positions in the securities mentioned in this article. All information and data are provided for informational purposes only. For more details, please view the Barchart Disclosure Policy here.
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