Cocoa Prices Slide Due to Weather and Inventory Fluctuations

On Monday, July ICE NY cocoa (CCN25) closed at -317 (-3.24%), while July ICE London cocoa #7 (CAN25) fell -218 (-3.33%).

Cocoa prices dropped sharply after an initial advance as favorable weather in West Africa is expected to boost cocoa crop growth. Rain is predicted this week in the primary cocoa-producing regions of Ivory Coast and Ghana.

Recent cocoa inventory trends are bearish 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 risen to an 8.5-month high of 2,202,098 bags as of Monday.

The declining pace of cocoa exports from Ivory Coast provides some support for cocoa prices. Government data reveal shipments of 1.6 million metric tons (MMT) of cocoa from October 1 to June 1, rising 6.7% year-on-year but down from a more robust 35% increase recorded in December.

Last month, NY cocoa reached a four-month high on weather concerns in West Africa. Although recent rains have occurred, significant drought conditions still affect over a third of both Ghana and Ivory Coast, according to the African Flood and Drought Monitor.

Cocoa prices are also influenced by quality issues with the Ivory Coast mid-crop, which is currently being harvested until September. Processors have reported that up to 5% to 6% of mid-crop cocoa in truckloads is of poor quality, compared with just 1% during the main crop.

Rabobank attributes the mid-crop’s poor quality to delayed rain affecting crop development. This smaller annual harvest, which typically begins in April, is estimated at 400,000 MT, down 9% from last year’s 440,000 MT.

Concerns over declining consumer demand for cocoa products are impacting prices, primarily due to fears that tariff increases will elevate already high cocoa prices. On April 10, Barry Callebaut AG reduced its annual sales guidance amid these concerns. Similarly, Hershey Co. reported a 14% drop in Q1 sales and projected $15-$20 million in tariff-related costs for Q2, likely increasing chocolate prices and further dampening demand.

Mondelez International also noted weaker-than-expected Q1 sales, attributing consumer cutbacks to economic uncertainty and rising chocolate prices.

However, cocoa prices received some support from better-than-expected global demand figures. Q1 North American cocoa grindings decreased by 2.5% year-on-year to 110,278 MT, less than the anticipated decline of at least 5%. Additionally, Q1 grindings in Europe and Asia also experienced smaller drops than expected.

Smaller cocoa supplies from Ghana, the second-largest producer, are also supportive for prices. The Ghanaian Cocoa Board recently cut its 2024/25 harvest forecast to 617,500 MT, reflecting a 5% reduction from a previous estimate of 650,000 MT.

Last Friday, the International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit to -494,000 MT, up from a previous estimate of -441,000 MT, marking the largest deficit in over 60 years. ICCO projected that 2023/24 cocoa production would fall by 13.1% year-on-year to 4.380 MMT. Additionally, global cocoa stock-to-grindings ratios were reported at 27.0%, the lowest in 46 years. Looking ahead, ICCO forecasts a surplus of 142,000 MT for 2024/25, the first surplus in four years, with expected production increasing by 7.8% year-on-year to 4.84 MMT.

On the date of publication,
Rich Asplund did not hold positions in any of the mentioned securities. This article is for informational purposes only. Please refer to Barchart’s Disclosure Policy
here.

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