Cocoa Prices Make Gains as Supply Outlook Improves
May ICE NY cocoa (CCK25) is currently up +76 (+0.95%), while May ICE London cocoa #7 (CAK25) has increased by +92 (+1.49%). Today’s cocoa prices have bounced back from earlier losses, benefiting from a decline in the dollar (DXY00). Following a drop to 4-1/2 month lows last Friday, cocoa prices have remained stable, consolidating their recent declines.
Recent Market Trends
Over the last five weeks, cocoa prices have struggled and reached 4-1/2 month lows last Friday, thanks to an improved supply outlook. The International Cocoa Organization (ICCO) reported on February 28 that a global cocoa surplus of 142,000 metric tons (MT) is expected for 2024/25, marking the first surplus in four years. ICCO also forecast a 7.8% year-on-year increase in global cocoa production, projecting it to rise to 4.84 million metric tons.
The rebound in cocoa inventories adds to the bearish sentiment for prices. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports have increased, reaching a 4-3/4 month high of 1,799,558 bags as of Thursday.
Concerns Around the Ivory Coast Mid-Crop
While the improving inventory levels are typically negative for prices, concerns about the upcoming mid-crop in the Ivory Coast are providing some support. This smaller annual cocoa harvest usually commences in April. Current estimates suggest this year’s mid-crop will yield around 400,000 MT, which is 9% lower than last year’s output of 440,000 MT.
Moreover, a slowdown in cocoa exports from the Ivory Coast appears to be supportive for pricing. Recent data indicates that farmers shipped 1.43 million MT of cocoa to ports this marketing year, which is a 12% increase from the previous year, though this is a reduction from a 35% increase seen in December.
Dampened Demand Concerns
Despite some supportive supply factors, demand concerns are impacting cocoa prices. Officials from chocolate manufacturers Hershey and Mondelez recently expressed worries that high cocoa prices are negatively affecting demand. On February 4, Mondelez’s CFO Zarmella indicated potential slowdowns in chocolate consumption, particularly in North America, where cocoa usage appears to be declining. Additionally, Mondelez warned on February 18 that chocolate prices could increase by as much as 50% due to rising cocoa costs, likely further restraining chocolate demand. Hershey cited on February 6 that high cocoa prices are leading the company to reformulate products by substituting cocoa with alternative ingredients.
Supporting the bearish narrative, Nigeria’s cocoa exports rose by 27% year-on-year to 46,970 MT in January. Nigeria is the fifth-largest cocoa producer globally.
Quarterly Grind Reports Reflect Weak Demand
The effects of high cocoa prices were evident in Q4, as quarterly grinding reports showed a decline in demand. The European Cocoa Association noted that Q4 grindings in Europe dropped 5.3% year-on-year to 331,853 MT, the lowest total in more than four years. Similarly, the Cocoa Association of Asia reported a slight decrease of 0.5% year-on-year to 210,111 MT in Asian grindings, also the lowest in four years. Additionally, the National Confectioners Association reported that Q4 cocoa bean grindings in North America fell 1.2% year-on-year to 102,761 MT.
Supply Cuts in Ghana
Expectations of reduced cocoa supplies from Ghana, the second-largest cocoa producer, are providing price support. In December, Ghana’s cocoa regulator, Cocobod, lowered its harvest forecast for 2024/25 for the second time this season to 617,500 MT, which is a 5% decrease from its August estimate of 650,000 MT.
The ICCO stated on February 28 that the global cocoa deficit for 2023/24 is expected to reach -441,000 MT, marking the largest deficit in over 60 years. It reported that cocoa production for the season has declined by 13.1% year-on-year to 4.380 million MT, with the global cocoa stocks/grindings ratio at 27.0%, the lowest in 46 years.
On the date of publication,
Rich Asplund did not hold positions in any of the securities mentioned in this article. All information and data in this piece is for informational purposes only. For more information, please view the Barchart Disclosure Policy.
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