Cocoa Prices Decline Amid Mixed Crop Reports and Demand Signals

On Monday, July ICE NY cocoa (CCN25) closed down 359 points, or 4.04%. In the UK, July ICE London cocoa #7 (CAN25) did not trade due to the May Day holiday.

Weather Boosts Cocoa Crops in West Africa

Cocoa prices dropped sharply, primarily due to improved weather conditions benefiting crops in West Africa, particularly in the Ivory Coast and Ghana, the leading cocoa producers. Farmers in the Ivory Coast noted, “Cocoa trees continue to re-flower, and the cherelles are becoming pods,” while those in Ghana reported that recent rains have positively affected their crops.

Demand Concerns Pressure Prices

Last Wednesday, cocoa prices reached two-week lows amid increasing concerns about demand. Hershey Co. reported a 14% decline in Q1 sales and projected tariff costs of $15-$20 million for Q2, likely leading to higher chocolate prices and dampening consumer demand. Similarly, Mondelez International announced weaker-than-expected Q1 sales, attributing this to cautious consumer spending resulting from economic uncertainty and elevated chocolate prices.

Inventory Levels Impact Market Outlook

An increase in cocoa inventories points to a bearish outlook for prices. After reaching a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa stocks at U.S. ports surged to a seven-month high of 2,084,247 bags as of Monday.

Additional pressure came from Bloomberg’s report revealing a 24% year-over-year rise in Nigerian Mar cocoa exports to 27,564 metric tons (MT). Nigeria ranks as the world’s fifth-largest cocoa producer.

Quality Concerns Limit Price Decline

Despite the bearish outlook, quality issues with the Ivory Coast’s mid-crop may provide some price support. Cocoa processors are rejecting truckloads of beans due to poor quality, with estimates indicating that 5% to 6% of the mid-crop cocoa in each truckload is subpar, compared to just 1% during the main crop.

Export Data Reveals Mixed Signals

On April 25, NY cocoa reached a two-and-a-half month high due to supply concerns as Ivory Coast cocoa exports slowed. Recent government data showed that farmers exported 1.53 million metric tons (MMT) of cocoa from October 1 to May 3 this marketing year, marking an 11.7% increase from the previous year but down from a more substantial 35% increase reported in December.

Mixed Grindings Data Provides Hope

Positive signals emerged from global cocoa demand as recent grindings data was better than anticipated. Q1 North American cocoa grindings fell 2.5% year-over-year to 110,278 MT, outperforming expectations of a 5% decline. Similarly, Q1 European cocoa grindings decreased 3.7% year-over-year to 353,522 MT, while Q1 Asian cocoa grinding fell by 3.4% year-over-year to 213,898 MT—a smaller drop than expected.

Mid-Crop Concerns and Global Trade Issues

Concerns about the Ivory Coast’s upcoming mid-crop could continue to support cocoa prices. Rabobank has highlighted that late-arriving rains have hindered crop development. This mid-crop, typically smaller than the main harvest and beginning in April, is projected to yield 400,000 MT this year, a 9% decrease from last year’s 440,000 MT.

Worries about declining consumer demand amid escalated global trade tensions and rising tariffs further cloud the cocoa market. On April 10, Barry Callebaut AG reduced its annual sales forecast in response to high cocoa prices and tariff uncertainties.

Future Supply Predictions

In a bearish development, the International Cocoa Organization (ICCO) on February 28 forecasted a global cocoa surplus of 142,000 MT for the 2024/25 period—the first surplus in four years. The ICCO also projected a 7.8% year-on-year increase in global cocoa production to 4.84 MMT.

Ghana’s Revised Harvest Outlook

Supply constraints from Ghana, the second-largest cocoa producer, may bolster prices. Cocobod, Ghana’s cocoa regulator, reduced its harvest forecast for the 2024/25 season to 617,500 MT—a 5% cut from an earlier estimate of 650,000 MT.

The ICCO also noted a significant global cocoa deficit of 441,000 MT for the 2023/24 season, the largest shortfall in over 60 years. Production for that period fell by 13.1% year-over-year to 4.38 MMT, and the global cocoa stocks/grindings ratio reached a 46-year low at 27.0%.

On the date of publication, Rich Asplund did not hold any positions in the securities mentioned. All information is for informational purposes only. For more details, please view the Barchart Disclosure Policy.

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