Cocoa Prices Decline Amid Inventory Surge and Demand Concerns

July ICE NY cocoa (CCN25) is down -73 (-0.67%), while July ICE London cocoa #7 (CAN25) has fallen -187 (-2.45%). Cocoa prices are currently facing downward pressure due to signs of considerable inventories. ICE-monitored cocoa stocks in U.S. ports rose to a 7-3/4 month high of 2,156,644 bags as of Monday. The decline in London cocoa prices quickened after the British pound (^GBPUSD) rallied to a 3-1/4 year peak, impacting cocoa futures priced in sterling.

On Tuesday, NY cocoa surged to a 3-1/2 month nearest-futures high as exports from Ivory Coast slowed, implying tighter supplies ahead. Recent government data indicated that Ivory Coast farmers have shipped 1.58 million metric tons (MMT) of cocoa this marketing year, a 10.5% increase from last year, but fewer than the 35% growth observed in December.

Weather Concerns and Quality Issues Support Cocoa Prices

Weather conditions in West Africa are also influencing cocoa prices. Although recent rainfall has occurred, drought still affects over one-third of Ghana and Ivory Coast, as reported by the African Flood and Drought Monitor. Furthermore, the quality of the current mid-crop, which is harvested through September, has raised concerns. Cocoa processors have voiced complaints about the quality, rejecting truckloads of Ivory Coast cocoa beans. They noted that poor quality now constitutes about 5% to 6% of mid-crop cocoa per truckload, significantly higher than the 1% during the main crop.

Rabobank attributes this decline in mid-crop quality to delayed rain, which stunted crop growth. The mid-crop typically begins in April, and this year, the average estimate for the harvest stands at 400,000 MT, a 9% decline from last year’s 440,000 MT.

Rising Inventories and Consumer Demand Concerns Weigh on Prices

A rebound in cocoa inventories is bearish for prices. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored inventories in U.S. ports have risen significantly to 2,156,644 bags. Concerns regarding consumer demand for cocoa products are also affecting prices, chiefly due to fears that tariffs could push cocoa prices even higher. On April 10, Barry Callebaut AG, one of the largest chocolate manufacturers, lowered its annual sales guidance due to high cocoa prices and tariff uncertainties. Similarly, Hershey Co. reported a 14% drop in Q1 sales and projected $15-$20 million in tariff costs for Q2, which could lead to increased chocolate prices and diminished consumer demand.

Additionally, Mondelez International experienced weaker-than-expected Q1 sales and noted that economic uncertainty and high chocolate prices are causing consumers to cut back on snack purchases.

Mixed Signals from Global Cocoa Demand

Despite these concerns, cocoa prices are benefiting from recent data indicating better-than-expected global demand. Q1 North American cocoa grindings fell 2.5% year-over-year to 110,278 MT, outperforming expectations of a decline of at least 5%. Similarly, Q1 European cocoa grindings dropped 3.7% year-over-year to 353,522 MT, also less than anticipated. In Asia, Q1 cocoa grindings fell 3.4% year-over-year to 213,898 MT, marking a smaller drop than the expected rate of at least 5%.

Smaller supplies from Ghana, the world’s second-largest cocoa producer, are supportive for prices. Ghana’s cocoa regulator, Cocobod, recently revised down its 2024/25 harvest forecast for the second time this season to 617,500 MT, reflecting a 5% decrease from an earlier estimate of 650,000 MT.

Global Cocoa Production Forecasts

The International Cocoa Organization (ICCO) reported on February 28 that the global cocoa deficit for the 2023/24 season is projected at -441,000 MT, marking the largest deficiency seen in over 60 years. The ICCO anticipates a 13.1% yearly decline in cocoa production to 4.380 MMT. Moreover, the 2023/24 global cocoa stocks-to-grindings ratio stands at 27.0%, a 46-year low. Looking ahead, the ICCO forecasts a surplus of 142,000 MT for 2024/25, expected to be the first surplus in four years, with projected production rising by 7.8% annually to 4.84 MMT.

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 here.

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