Cocoa Prices Experience Modest Gains Amid Supply Concerns

May ICE NY cocoa (CCK25) today is up +29 (+0.31%), and May ICE London cocoa #7 (CAK25) is up +8 (+0.11%).

Market Overview: Supply and Demand Dynamics

Cocoa prices have shown slight increases today, buoyed by ongoing supply concerns. Last Friday and Monday, prices fell to 3-1/4 month lows due to fears surrounding cocoa demand exacerbated by recent rainfall in the Ivory Coast and Ghana. Despite today’s uptick, cocoa price gains are limited as Nigeria’s cocoa exports in January rose +27% year-over-year to 46,970 MT. As the world’s fifth-largest cocoa producer, Nigeria’s increased output adds to the supply side. Additionally, the recent rally in the dollar index (DXY00) to a one-week high further caps potential gains.

Export Concerns and Inventory Trends

Concerns over deteriorating cocoa exports from the Ivory Coast offer some support to cocoa prices. Government data released on Monday indicated that, from October 1 to February 23, farmers shipped 1.36 million metric tons (MMT) of cocoa to ports, reflecting a +17% increase from last year. However, this growth rate is significantly lower than the 35% increase recorded in December.

Tight global cocoa inventories continue to function as a bullish factor for prices. ICE-monitored cocoa stocks in US ports have been on a downward trend for the last 1.5 years, previously hitting a 21-year low of 1,263,493 bags on January 24. Fortunately, inventories have recently rebounded to a 2-1/2 month high of 1,447,171 bags.

Ghana’s Production Forecast and Global Context

Additionally, diminishing cocoa supplies from Ghana, the world’s second-largest cocoa producer, support higher cocoa prices. In December, Cocobod, Ghana’s cocoa regulatory body, revised its forecast for the 2024/25 cocoa harvest down to 617,500 MT, which represents a 5% decrease from the previous estimate of 650,000 MT made in August.

Demand Challenges from Chocolate Producers

On Monday, cocoa prices plummeted to 3-1/4 month lows following warnings from executives at major chocolate companies Hershey and Mondelez regarding the negative impact of high cocoa prices on demand. During a conference on February 4, Mondelez CFO Zarmella stated, “We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.” Furthermore, on the previous Tuesday, Mondelez cautioned that chocolate prices might increase by as much as 50% because of the surge in cocoa prices, potentially leading to decreased chocolate demand. Hershey also noted on February 6 that elevated cocoa prices compelled the company to reformulate recipes by substituting cocoa with alternative ingredients.

Impact of High Prices on Cocoa Grinding

High cocoa prices have visibly reduced demand in Q4, as shown in various quarterly grinding reports. On January 9, the European Cocoa Association revealed that Q4 European cocoa grindings fell -5.3% year-over-year to 331,853 MT, marking the lowest level in over four years. The Cocoa Association of Asia echoed similar findings, reporting that Q4 Asian cocoa grindings decreased -0.5% year-over-year to 210,111 MT, also the lowest in four years. The National Confectioners Association indicated that North American cocoa bean grindings in Q4 slid -1.2% year-over-year to 102,761 MT.

Deficit Projections and Industry Outlook

In a bullish sign, on November 22, the International Cocoa Association (ICCO) raised its estimate for the 2023/24 global cocoa deficit from -462,000 MT to -478,000 MT, marking the largest deficit in over 60 years. The ICCO also revised its production estimate for 2023/24 downward to 4.380 MMT from May’s estimate of 4.461 MMT, reflecting a -13.1% year-over-year decline. Furthermore, ICCO projected a global cocoa stocks-to-grindings ratio of 27.0%, which would be a 46-year low.

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.

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