Cocoa Prices Decline as Demand Concerns Mount Amid High Prices

May ICE NY cocoa (CCK25) closed down -359 (-4.25%) on Thursday, while May ICE London cocoa #7 (CAK25) fell -110 (-1.80%).

Demand Woes Impact Cocoa Market

On Thursday, cocoa prices surrendered an early advantage and fell sharply. The downturn stemmed from concerns about cocoa demand after Barry Callebaut AG, a leading chocolate manufacturer, revised its sales guidance for the year due to high cocoa prices and tariff uncertainties.

Recent Price Movements

Earlier this week, NY cocoa plummeted to a three-week low, while London cocoa fell to a five-month low. These declines raised worries that a potential increase in tariffs—part of an escalating global trade conflict—could further erode consumer demand for cocoa and chocolate products.

Cocoa prices have been under pressure for the past two months, dropping to a four-and-three-quarter month low on March 21 due to improved supply forecasts. 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 projected a 7.8% year-over-year increase in global cocoa production, expecting it to reach 4.84 million metric tons.

Inventory Recovery and Price Pressures

The increase in cocoa inventories also weighs on prices. Following a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports rebounded to a five-and-a-half-month high of 1,868,177 bags on Wednesday.

Last Thursday, NY cocoa prices surged to a one-and-a-quarter month high due to expectations of a weaker mid-crop cocoa harvest in West Africa. Rabobank reported that delayed rains have hindered crop growth, and recent surveys of cocoa farmers in the Ivory Coast and Ghana have revealed disappointing results.

Outlook for the Ivory Coast’s Mid-Crop

Concerns regarding the upcoming mid-crop in the Ivory Coast are providing underlying support for cocoa prices. This mid-crop, typically the smaller of the two annual harvests, is expected to begin this month. The average estimate for this year’s Ivory Coast mid-crop is 400,000 MT, a decline of 9% from last year’s 440,000 MT.

Recent data show that cocoa exports from the Ivory Coast have started to slow, impacting prices. Government figures indicate that farmers shipped 1.44 million metric tons of cocoa to ports from October 1 to April 6, an 11% year-over-year increase but a decline compared to a larger 35% rise recorded in December.

Demand Challenges from Chocolate Producers

Demand uncertainties continue to exert pressure on cocoa prices. Executives from Hershey and Mondelez have cautioned that elevated prices are diminishing demand for chocolate. Mondelez CFO Zarmella stated on February 4 that they observed a potential slowdown in North American cocoa consumption. Additionally, on February 18, the company warned that chocolate prices could spike as much as 50%, further impacting demand. Hershey executives also indicated on February 6 that high cocoa prices are prompting them to reformulate recipes, substituting cocoa with alternatives.

On a bearish note, reports indicated that Nigeria saw a 27% year-over-year increase in January cocoa exports, totaling 46,970 MT, underscoring its position as the world’s fifth-largest cocoa producer.

Decline in Cocoa Demand in Q4

High cocoa prices were responsible for a decrease in demand during Q4, evident in quarterly grinding reports. On January 9, the European Cocoa Association reported a 5.3% year-over-year decline in Q4 European cocoa grindings, totaling 331,853 MT—the lowest figure in over four years. Similarly, the Cocoa Association of Asia reported a slight drop in Q4 Asian cocoa grindings, down 0.5% year-over-year to 210,111 MT, also a four-year low. In North America, the National Confectioners Association reported Q4 cocoa bean grindings falling by 1.2% year-over-year to 102,761 MT.

Ghana’s Production Forecast Influences Prices

The current supply outlook from Ghana, the second-largest cocoa producer globally, is expected to support prices. Cocobod, Ghana’s cocoa regulator, recently reduced its 2024/25 cocoa harvest forecast to 617,500 MT, a 5% drop from its previous estimate of 650,000 MT made in August.

The ICCO forecast highlights a global cocoa deficit of 441,000 MT for the 2023/24 season, marking the largest deficit in over 60 years. Their report indicated a 13.1% year-over-year decline in cocoa production, projecting it at 4.380 MMT and noting that the global cocoa stocks-to-grindings ratio fell to 27.0%, the lowest level in 46 years.

On the date of publication, Rich Asplund did not hold positions in any of the securities mentioned. All provided information and data are solely for informational purposes. For more details, please view the Barchart Disclosure Policy at this link.

More news from Barchart

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