Cocoa Prices Plummet Amid Demand Concerns and High Costs
March ICE NY cocoa (CCH25) closed down -1,141 (-11.33%) on Friday, while March ICE London cocoa #7 (CAH25) fell by -605 (-7.64%).
Demand Concerns Pull Prices Down
Cocoa prices took a significant hit on Friday, reaching a 2-1/2 month low for NY cocoa and a 3-month low for London cocoa. The declines are largely attributed to worries about demand. Executives at major chocolate companies like Hershey and Mondelez have recently signaled that high cocoa prices are negatively impacting sales. On February 4, Mondelez CFO Zarmella noted, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.” Additionally, on February 6, Hershey executives acknowledged that they are reformulating their recipes due to the rising costs of cocoa.
Declining Cocoa Demand Evident in Grind Reports
The impact of high cocoa prices is evident in recent quarterly grinding reports. The European Cocoa Association reported on January 9 that cocoa grindings in Europe fell -5.3% year-over-year in Q4, totaling 331,853 MT, marking the lowest levels in over four years. Similarly, the Cocoa Association of Asia noted a -0.5% drop in Asian cocoa grindings in the same quarter, reaching 210,111 MT, also the least seen in four years. In North America, the National Confectioners Association revealed a -1.2% decline in cocoa bean grindings, totaling 102,761 MT for Q4.
Export Concerns Could Offer Some Support
Worries about slowing cocoa exports from the Ivory Coast might be providing some support for cocoa prices. Although Ivory Coast farmers shipped 1.34 million metric tons (MMT) of cocoa to ports from October 1 to February 16—up +20% from last year—the growth rate has slowed significantly from a 35% rise recorded in December.
Global Inventories at Critical Levels
As global cocoa inventories tighten, this situation could bolster cocoa prices. Inventories monitored by ICE at U.S. ports have decreased consistently over the last year and a half. As of January 24, these inventories hit a 21-year low of 1,263,493 bags, although they have since rebounded to a 2-month high of 1,420,480 bags as of Friday.
Long-term Forecasts Remain Grim
A notable concern was raised by the International Cocoa Association (ICCO) on November 22, which increased its 2023/24 global cocoa deficit estimate to -478,000 MT from May’s -462,000 MT, representing the largest deficit in over 60 years. The ICCO also revised down its cocoa production estimate to 4.380 MMT, reflecting a -13.1% decrease compared to last year. The projected stocks-to-grindings ratio for 2023/24 now stands at 27.0%, the lowest 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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