Cocoa Prices Surge Amid Supply Concerns and Weather Issues

On Friday, July ICE NY cocoa (CCN25) closed at +641 (+6.25%), while July ICE London cocoa #7 (CAN25) rose +385 (+5.24%). Cocoa prices jumped significantly, reaching a 3-1/4 month high in New York and a 3-month high in London. The latest increase is attributed to weather concerns in West Africa, where drought continues to affect over a third of Ghana and the Ivory Coast, despite recent rain, according to the African Flood and Drought Monitor.

Quality Issues Strain the Mid-Crop Harvest

The recent rally in cocoa prices has been driven by quality issues related to the Ivory Coast’s mid-crop, currently being harvested through September. Cocoa processors have reported rejecting truckloads of cocoa beans due to poor quality, with approximately 5% to 6% of the mid-crop cocoa deemed subpar, compared to only 1% during the main crop. Rabobank has linked this quality decline to late rains that hindered crop growth. This year, the average estimate for the Ivory Coast mid-crop stands at 400,000 MT, a 9% decrease from 440,000 MT last year.

Export Slowdown Contributes to Supply Concerns

Supply issues further bolster cocoa prices as the pace of exports from the Ivory Coast has slowed. Government data released Monday indicated that farmers shipped 1.56 MMT of cocoa to ports from October 1 to May 11, a rise of 11.4% from last year but noticeably down from a +35% increase recorded in December.

Rebound in Cocoa Inventories Affects Market Dynamics

A rebound in current cocoa inventories is creating downward pressure on prices. Following a drop to a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa stocks in U.S. ports have increased, reaching a 7-1/2 month high of 2,153,297 bags this past Friday.

Concerns Over Consumer Demand and Tariff Impacts

Worries about decreasing consumer demand for cocoa and cocoa products are affecting prices. High cocoa prices and tariff uncertainties were notable factors for Barry Callebaut AG, leading the chocolate maker to reduce its annual sales forecast. Hershey Co. reported a 14% decline in Q1 sales, projecting $15-$20 million in additional tariff costs for Q2, which is expected to further diminish consumer demand. Mondelez International also reported weaker-than-expected Q1 sales as consumers cut back on snack purchases amid economic uncertainty and rising chocolate prices.

Mixed Global Demand Trends Provide Some Relief

Despite concerns, there is a positive carryover from recent data indicating better-than-expected global cocoa demand. North American cocoa grindings for Q1 fell by 2.5% year-over-year to 110,278 MT, outperforming expectations of at least a 5% decline. Similarly, European and Asian cocoa grindings fell by smaller percentages than anticipated, casting a slightly brighter outlook on cocoa demand.

Ghana’s Production Forecasts and Global Deficit Outlook

Smaller cocoa supplies from Ghana, the world’s second-largest cocoa producer, are also boosting prices. Cocobod reduced its forecast for Ghana’s 2024/25 cocoa harvest to 617,500 MT, a 5% decrease from the previous estimate of 650,000 MT. Additionally, the International Cocoa Organization (ICCO) reported that the global cocoa deficit for the 2023/24 season is projected at 441,000 MT, marking the largest deficit in over six decades. The ICCO expects cocoa production to decline by 13.1% year-over-year, reaching 4.380 MMT. However, a surplus of 142,000 MT is predicted for the 2024/25 season, with global cocoa production projected to rise by 7.8% to 4.84 MMT.

On the date of publication, Rich Asplund had no positions in any of the securities mentioned in this article. All information and data are for informational purposes only. For more information, please view the Barchart Disclosure Policy.