On Friday, July ICE NY cocoa (CCN25) rose by +119 (+1.31%), while July ICE London cocoa #7 (CAN25) increased by +17 (+0.26%). Key drivers for this uptick included quality concerns over the Ivory Coast cocoa mid-crop, currently being harvested. This situation has resulted in cocoa processors rejecting truckloads of beans due to quality issues, with 5% to 6% of the mid-crop deemed poor quality—up from just 1% during the main crop.

According to Rabobank, these quality issues are partially attributed to late-arriving rain in the region, which hindered crop growth. Typically, the mid-crop yields less cocoa and begins its harvest in April. This year, the average estimate for the Ivory Coast mid-crop stands at 400,000 metric tons (MT), down 9% from 440,000 MT last year.

Consumer Demand and Global Trade Uncertainties

Despite the current rise in cocoa prices, concerns linger about potential declines in consumer demand for cocoa and its products. This apprehension stems from escalating global trade tensions and tariffs that have already heightened cocoa prices. Notably, Barry Callebaut AG, one of the largest chocolate manufacturers worldwide, adjusted its annual sales forecast down due to these rising costs.

On April 25, NY cocoa reached a 2-1/2 month high, primarily fueled by concerns over supply as the pace of Ivory Coast cocoa exports slowed. Recent government data revealed that farmers exported 1.53 million MT of cocoa between October 1 and May 3—an 11.7% increase from last year but a decline from the +35% growth seen in December.

Market Reactions and Sales Reports

Last Wednesday, cocoa prices dipped to two-week lows amid demand concerns. Hershey Co. reported a 14% decrease in Q1 sales and predicted additional tariff costs of $15-$20 million for Q2. Such costs are likely to push chocolate prices higher, thereby dampening consumer demand. Similarly, Mondelez International noted weaker-than-expected Q1 sales, attributing the decline to consumer cutbacks amid economic uncertainty and rising chocolate prices.

Furthermore, the recent rebound in cocoa inventories presents additional downward pressure on prices. Following a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories at U.S. ports have increased to 2,112,402 bags, reaching a 7-1/2 month high.

International Developments and Future Outlook

Cocoa prices are also affected by positive developments, such as Nigeria’s Mar cocoa exports growing by 24% year-over-year to 27,564 MT, making Nigeria the fifth-largest cocoa producer globally. Additionally, global cocoa demand appears stronger than anticipated. For instance, Q1 North American cocoa grindings fell by only 2.5% year-over-year, outperforming expectations of a 5% decline.

In contrast, the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 MT for the 2024/25 season, marking the first surplus in four years. They also forecast that global cocoa production will rise by 7.8% to 4.84 million MT.

Cocoa prices may find support from reduced supplies in Ghana, the second-largest cocoa producer. The Ghana Cocoa Board has lowered its forecast for the 2024/25 cocoa harvest by 5% to 617,500 MT.

The ICCO reported a global cocoa deficit of 441,000 MT for 2023/24, the largest in over 60 years. They noted that production fell by 13.1% year-over-year to 4.38 million MT, with the cocoa stocks-to-grindings ratio dropping to a 46-year low of 27.0%.

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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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