Cocoa Prices Slide Amid Global Demand Concerns
Declining Demand and Weather Impact Cocoa Markets
March ICE NY cocoa (CCH25) closed down -420 (-3.99%) on Thursday, while March ICE London cocoa #7 (CAH25) fell by -256 (-3.10%).
On Thursday, cocoa prices continued their sharp decline from earlier in the week. NY cocoa reached a six-week low, and London cocoa hit a five-week low. The drop results from signs of slowing demand, as highlighted by Hershey during its conference call. The well-known chocolate maker indicated high cocoa prices are forcing a rethink of recipes, opting to replace cocoa with alternative ingredients. Furthermore, during an earnings call, Mondelez International’s CFO, Zarmella, confirmed a slowdown in chocolate consumption, particularly in North America, where cocoa demand is waning.
Recent rains in West Africa have positively influenced the development of cocoa trees, putting additional pressure on cocoa prices. Farmers in Ivory Coast and Ghana have reported that the weather has led to improved crop conditions and the re-flowering of cocoa trees.
Concerns about declining exports from Ivory Coast provide some support for cocoa prices. Although government data released on Monday showed farmers shipped 1.29 million metric tons (MMT) of cocoa to ports this marketing year—an increase of over 22% from last year—the growth rate has slowed from the 35% rise noted in December.
Yet, worries surrounding production conditions in West Africa could boost prices. Maxar Technologies reported that this year’s Harmattan winds yield the driest conditions in six years, negatively impacting crop development. Some farmers in Ivory Coast and Ghana have noted signs of distress in their cocoa trees, with yellowing leaves and withering cocoa pods.
Global cocoa deficits also have the potential to increase prices. The International Cocoa Organization (ICCO) recently released a survey suggesting that global cocoa stockpiles at the end of the 2023/24 season stand at 1.041 MMT, down 36% year-on-year and lower than a previous estimate of 1.300 MMT. This points to a possibly more significant global cocoa deficit of -478,000 MT than previously forecast.
Tight inventories globally further support cocoa prices. ICE-monitored cocoa holdings in U.S. ports have been declining for the past year and a half, and as of January 24, they hit a 21-year low of 1,263,493 bags.
Interestingly, Hershey Co. has sought approval from the CFTC to buy a large quantity of cocoa through the ICE Futures Exchange due to tight global supplies. According to Bloomberg, the company aims to acquire over 90,000 MT of cocoa, which is significantly above the current limits set by the exchange and federal regulations. The global cocoa shortages have reached a point where taking delivery through the exchange is now cheaper than purchasing in the physical market.
Notably, on December 18, NY Cocoa reached its highest level in futures trading, while London Cocoa also achieved a nine-month high, driven by concerns regarding the West African cocoa mid-crop. Maxar Technologies hinted that adverse weather conditions could hinder the early growth of the mid-year cocoa crop, typically harvested in April.
On a more positive note, the ICCO increased its global cocoa deficit estimate for the 2023/24 season to -478,000 MT, marking the largest deficit in over 60 years. This was accompanied by a reduction in the 2023/24 global production estimate to 4.380 MMT, also down 13.1% year-on-year. The ICCO projects a historical low global stocks/grindings ratio of 27.0%.
Contrarily, there are concerns that elevated prices may harm cocoa demand. The European Cocoa Association recently reported a 5.3% year-on-year decrease in grape grindings for Q4, marking the lowest levels in over four years. Similarly, cocoa grindings in Asia fell by 0.5%, with North American figures decreasing by 1.2% during the same period.
In Nigeria, cocoa exports surged by 87% year-on-year to 46,696 MT, contributing further downward pressure on prices, despite Nigeria being the world’s sixth-largest cocoa producer.
On the negative side for cocoa markets, the Ivory Coast’s regulatory body, Le Conseil Cafe-Cacao, recently raised its cocoa production estimate for 2024/25 to between 2.1 and 2.2 MMT, up from an earlier estimate of 2.0 MMT.
Meanwhile, Ghana’s Cocoa Board (Cocobod) lowered its projection for 2024/25 to 650,000 MT from a previous estimate of 700,000 MT, due to adverse weather and crop diseases. Ghana’s current cocoa harvest has reportedly plummeted to a 23-year low of 425,000 MT, a major concern for the world’s second-biggest cocoa producer.
On the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information and data in this article is for informational purposes only. For more details, please view the Barchart Disclosure Policy
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