Cocoa Prices Surge Amid Export Slowdown and Supply Concerns

May ICE NY cocoa (CCK25) closed up +275 (+3.48%) on Tuesday, while May ICE London cocoa #7 (CAK25) rose +103 (+1.66%).

The rise in cocoa prices on Tuesday can be attributed to the slowdown in cocoa exports from the Ivory Coast. Government data indicated that farmers shipped 1.44 million metric tons (MMT) of cocoa from October 1 to March 30, marking an 11% increase from last year, but significantly lower than the 35% rise recorded in December.

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Markets are reacting to concerns regarding the upcoming mid-crop in the Ivory Coast, which typically begins in April. This year’s estimated mid-crop stands at 400,000 MT, which is a 9% decline from last year’s 440,000 MT.

Over the past seven weeks, cocoa prices were under pressure, hitting 4-1/2 month lows on March 21 due to a more favorable supply outlook. The International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 MT for 2024/25, marking the first surplus in four years. Additionally, ICCO forecasts global cocoa production will increase by 7.8% year-over-year to 4.84 MMT.

The rebound in cocoa inventories contributes to the bearish sentiment surrounding prices. Since falling to a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports have surged to a 5-1/4 month high of 1,855,268 bags as of Tuesday.

Demand concerns further complicate the cocoa market. Recent statements from Hershey and Mondelez executives point to high cocoa prices negatively impacting demand. Mondelez’s CFO, Zarmella, noted on February 4 that the company is experiencing declining cocoa consumption, particularly in North America. Furthermore, Mondelez warned on February 18 that chocolate prices might increase by as much as 50%, which could further dampen demand. Hershey also indicated on February 6 that the high prices are compelling them to adapt their recipes by substituting cocoa with alternative ingredients.

On a related note, Nigeria reported a 27% year-over-year increase in cocoa exports for January, reaching 46,970 MT. Nigeria ranks as the world’s fifth-largest cocoa producer, which could be influencing market dynamics.

The high cocoa prices likely suppressed demand in the fourth quarter, as indicated by recent grinding reports. The European Cocoa Association reported a 5.3% year-over-year decline in Q4 European cocoa grindings, dropping to 331,853 MT, the lowest figure in over four years. Similarly, the Cocoa Association of Asia noted a slight decrease of 0.5% year-over-year in Q4 Asian cocoa grindings to 210,111 MT, also a four-year low. Furthermore, the National Confectioners Association recorded a 1.2% year-over-year drop in Q4 North American cocoa bean grindings, totaling 102,761 MT.

Additionally, smaller cocoa supplies from Ghana support prices. Ghana’s cocoa regulator, Cocobod, has revised its 2024/25 cocoa harvest forecast downwards for the second time this season to 617,500 MT, representing a 5% decrease from the previous estimate of 650,000 MT.

The ICCO reported on February 28 that the global cocoa deficit for 2023/24 reached -441,000 MT, the largest deficit in over 60 years, with production falling 13.1% year-over-year to 4.38 MMT. The cocoa stocks-to-grindings ratio for 2023/24 is projected 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.

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