Cocoa Prices Rise as Supply Concerns and Demand Wane

On Friday, May ICE NY cocoa (CCK25) closed up +105 (+1.28%), while May ICE London cocoa #7 (CAK25) finished up +91 (+1.41%). The modest gains in cocoa prices come as they continue to recover from Tuesday’s 3-1/2 month low. A decline in the dollar index (DXY00) to a 4-month low prompted some short covering in cocoa futures.

Recent Market Trends

Cocoa prices have struggled in recent weeks, dropping to 3-1/2 month lows earlier this week due to an improving supply outlook. The International Cocoa Organization (ICCO) reported last Friday a forecast for a global cocoa surplus of 142,000 MT for 2024/25, marking the first surplus in four years. Additionally, ICCO projected that global cocoa production would increase +7.8% year-on-year to 4.84 million metric tons (MMT).

Export Challenges and Demand Issues

On a more bearish note, Nigeria, the world’s fifth-largest cocoa producer, announced last Thursday that its January cocoa exports surged +27% year-on-year to 46,970 MT. However, concerns about demand are mounting. Executives from major chocolate manufacturers like Hershey and Mondelez have recently indicated that rising cocoa prices are negatively impacting consumption. Mondelez’s CFO, during a call on February 4, noted signs of slowing demand for chocolate, particularly in North America, stating, “We are seeing signs… where cocoa consumption is coming down.” Furthermore, on February 18, Mondelez flagged potential chocolate price hikes up to 50% due to increased cocoa costs, which could further suppress demand. Hershey has also reported reformulating recipes to manage high cocoa prices.

Impact on Cocoa Grindings

The elevated cocoa prices have led to decreased demand, as reflected in recent quarterly grinding reports. The European Cocoa Association noted on January 9 that Q4 European cocoa grindings dipped -5.3% year-on-year to 331,853 MT, the lowest level seen in over four years. Similarly, the Cocoa Association of Asia reported a slight decline of -0.5% year-on-year to 210,111 MT for Asian cocoa grindings in the same period, also marking a four-year low. Additionally, the National Confectioners Association reported a -1.2% decrease in Q4 North American cocoa bean grindings to 102,761 MT.

Supply Constraints and Inventory Levels

Concerns regarding exports from Ivory Coast, the leading cocoa producer, are providing some support for prices. Though government data revealed that Ivory Coast farmers shipped 1.39 MMT of cocoa to ports from October 1 to March 2—up +17% from the previous year—the growth rate has slowed compared to a 35% rise noted in December.

Global cocoa inventories remain tight, creating bullish pressure on prices. ICE-monitored cocoa inventories held in U.S. ports have been declining over the past year and a half, reaching a 21-year low of 1,263,493 bags on January 24. However, inventories have since rebounded to a 2-3/4 month high of 1,463,836 bags.

Ghana’s Production Outlook

In Ghana, the world’s second-largest cocoa producer, declining supplies are also supportive of cocoa prices. Cocobod, Ghana’s cocoa regulator, has revised its 2024/25 cocoa harvest forecast downward for the second time this season, now estimating it to be 617,500 MT, a -5% reduction from the previous estimate of 650,000 MT.

Historical Context

The ICCO reported last Friday that the 2023/24 global cocoa deficit stands at -441,000 MT, the largest deficit in over 60 years. It also noted that cocoa production for 2023/24 has fallen -13.1% year-on-year to 4.380 MMT, resulting in a cocoa stocks/grindings ratio of 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 is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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