Cocoa Prices Continue Decline Amid Global Trade Concerns

On Tuesday, May ICE NY cocoa (CCK25) ended down by -298 (-3.70%), while May ICE London cocoa #7 (CAK25) fell -227 (-3.80%). This decline signals a continuation of a three-session downward trend, with NY cocoa reaching a three-week low and London cocoa dipping to a five-month low. Concerns regarding the global trade war are impacting cocoa prices, raising fears that consumer demand for cocoa and related products may decrease as tariffs increase cocoa costs.

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Last Thursday, NY cocoa climbed to a 1.25-month high due to reports of a weak mid-crop yield in West Africa. Rabobank noted that untimely rains have hindered crop growth, with recent farmer surveys from Ivory Coast and Ghana showing disappointing results.

Market Influences on Cocoa Supply and Demand

Concerns over the upcoming mid-crop in the Ivory Coast support current cocoa prices. The mid-crop, the smaller of the two annual harvests, typically begins this month. The average estimate for this year’s mid-crop is 400,000 MT, which is a 9% decline from last year’s 440,000 MT.

Moreover, cocoa exports from the Ivory Coast have been slowing, further bolstering prices. Government data released on Monday indicated that farmers have shipped 1.44 MMT of cocoa from October 1 to April 6, marking an 11% increase from last year, but a decrease from the 35% rise reported in December.

Production Outlook and Inventory Recovery

Cocoa prices have faced downward pressure over the last seven weeks. For instance, NY cocoa dropped to a 4.75-month low on March 21 due to a more favorable supply outlook. On February 28, 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. The ICCO also foresees global cocoa production increasing by 7.8% year-over-year to 4.84 MMT for the same period.

The increase in cocoa inventories is another factor weighing on prices. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports rebounded, reaching a five-and-a-half-month high of 1,863,172 bags last Thursday.

Demand Concerns and Industry Responses

Worries regarding demand are also impacting cocoa prices. Hershey and Mondelez, major chocolate producers, have cautioned that high cocoa prices are negatively affecting demand. Mondelez’s CFO Zarmella mentioned on February 4 that demand in parts of North America is declining. The company’s February 18 statement indicated potential increases in chocolate prices by as much as 50% due to rising cocoa costs, which could further depress demand. Hershey’s executives echoed similar sentiments, stating on February 6 that they may need to reformulate recipes due to high cocoa prices.

On a more optimistic note, Nigeria reported on February 27 that its January cocoa exports rose by 27% year-over-year to 46,970 MT, showcasing its position as the world’s fifth-largest cocoa producer.

Quarterly Reports Reflect Weakening Cocoa Demand

Data reveals that high cocoa prices have suppressed demand in the fourth quarter, as shown in regional grinding reports. The European Cocoa Association reported on January 9 that Q4 European cocoa grindings fell by 5.3% year-over-year to 331,853 MT, the lowest figure in over four years. Similarly, the Cocoa Association of Asia noted a marginal decline of 0.5% year-over-year to 210,111 MT for the same period, also a four-year low. Additionally, the National Confectioners Association indicated a 1.2% decrease in North American cocoa bean grindings to 102,761 MT during the same quarter.

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

On February 28, the ICCO reported a 2023/24 global cocoa deficit of 441,000 MT, the largest deficit in over 60 years. The ICCO also highlighted a 13.1% year-over-year decline in cocoa production to 4.38 MMT and a stocks-to-grindings ratio of 27.0%, the lowest observed in 46 years.

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