Cocoa Prices Decline Amid Demand Concerns and Supply Challenges
March ICE NY cocoa (CCH25) is currently down -331 (-3.30%), while March ICE London cocoa #7 (CAH25) has decreased by -117 (-1.48%).
Cocoa Prices Face Pressure Due to Weakening Demand
Cocoa prices are experiencing a significant drop today, remaining slightly above last Friday’s two-month lows. The decline follows a week marked by indicators of slowing cocoa demand. Last Thursday, Hershey announced it is reformulating some recipes to offset rising cocoa costs by substituting cocoa with alternative ingredients. Meanwhile, Mondelez International’s CFO Zarmella mentioned, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down,” suggesting a possible slowdown in chocolate demand.
Q4 Demand Falls Amid High Prices
Demand for cocoa fell in the fourth quarter of last year due to elevated prices. On January 9, the European Cocoa Association reported a year-over-year drop of -5.3% in European cocoa grindings, totaling 331,853 metric tons (MT), the lowest level in over four years. Similarly, the Cocoa Association of Asia noted a minor decline of -0.5% in Asian grindings, reaching 210,111 MT, also a four-year low. In North America, cocoa bean grindings dipped -1.2% year-on-year to 102,761 MT.
Favorable Weather Impacts Supply
Recent beneficial rainfall in West Africa has contributed positively to cocoa tree development, influencing cocoa prices. Farmers in the Ivory Coast and Ghana report improved crop conditions and a re-flowering of their cocoa trees.
Concerns About Export Rates from Ivory Coast
While there are worries about decreasing exports from the Ivory Coast propping up cocoa prices, current government reports show farmers have shipped 1.32 million metric tons (MMT) to ports this marketing year up to February 9, marking a more than +21% increase from last year. However, this growth rate has slowed from a previous increase of 35% observed in December.
Dry Conditions Threaten Crop Production
Forecaster Maxar Technologies highlights the impact of this year’s exceptionally dry Harmattan winds, marking the driest conditions in six years. Many farmers in Ivory Coast and Ghana have reported issues such as yellowing leaves and wilting cocoa pods, indicating that cocoa trees are adversely affected.
Global Deficit of Cocoa Projected to Widen
Worries about a growing global cocoa deficit also support price increases. On January 24, the International Cocoa Organization (ICCO) indicated that global cocoa stockpiles at the end of the 2023/24 season are expected to be at 1.041 MMT, reflecting a decline of -36% year-on-year and below an earlier estimate of 1.300 MMT. This signals that the ICO’s deficit estimate of -478,000 MT could be deeper than previously projected.
Tight Inventories and Hershey’s Strategic Moves
Tight global cocoa inventories add further support for prices. Cocoa inventories monitored by ICE in U.S. ports have been falling for the past 1.5 years, dropping to a 21-year low of 1,263,493 bags on January 24. Furthermore, Hershey Co. has sought approval from the CFTC to buy a significant amount of cocoa through the ICE Futures Exchange due to scarcity. Reports indicate that Hershey plans to purchase more than 90,000 MT of cocoa, surpassing existing position limits, as the global supply shortage renders it more cost-effective to take delivery through the exchange rather than the physical market.
Recent Price Trends and Historical Context
On December 18, NY Cocoa experienced an all-time nearest-futures high, while London Cocoa reached a nine-month high, driven by deteriorating conditions for West Africa’s mid-year cocoa crop. Maxar Technologies cautioned that the ongoing dry conditions could severely affect the early growth of the mid-year crop, which is harvested in April.
International Cocoa Association Reports Significant Deficit
On November 22, the ICCO raised its forecast for the global cocoa deficit to -478,000 MT, the largest in over 60 years, from an earlier estimate of -462,000 MT. They also downgraded their 2023/24 production estimate to 4.380 MMT, marking a -13.1% year-on-year decrease, with stocks expected to hit a 46-year low with a grindings ratio of 27.0%.
Nigeria’s Increased Exports Challenge Price Stability
Despite the tightening global inventory, stronger cocoa exports from Nigeria, the world’s sixth-largest producer, are putting downward pressure on prices. In December, Nigeria’s cocoa exports surged +87% year-on-year to 46,696 MT.
Ivorian Production Estimates Rise, Adding to Uncertainties
On a negative note, the Ivory Coast regulator Le Conseil Cafe-Cacao raised its production estimate for 2024/25 to between 2.1 and 2.2 MMT, up from a previous forecast of 2.0 MMT made in June.
Conversely, Ghana’s Cocoa Board (Cocobod) reduced its cocoa production outlook for 2024/25 to 650,000 MT from a June estimate of 700,000 MT, reflecting challenges from adverse weather and crop diseases. Ghana, the second-largest cocoa producer globally, reported a 23-year low harvest of 425,000 MT for the 2023/24 season.
As of publication, Rich Asplund did not hold positions in any of the securities mentioned in this article. All information is intended solely for informational purposes. For further details, please view the Barchart Disclosure Policy
here.
More news from Barchart
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
