Cocoa Prices Rise Amid Supply Surplus and Demand Concerns

May ICE NY cocoa (CCK25) is currently trading up +68 (+0.83%), while May ICE London cocoa #7 (CAK25) is up +59 (+0.92%).

Market Recovery After Recent Lows

Cocoa prices are showing moderate gains today as they rebound from a 3-1/2 month low reached on Tuesday. The decline of the dollar index (DXY00) to a 4-month low has spurred short covering in cocoa futures.

Recent Supply Forecasts

Prices have faced pressure in recent weeks, touching three-and-a-half-month lows due to an improving supply outlook. The International Cocoa Organization (ICCO) reported last Friday a forecast for a global cocoa surplus of 142,000 metric tons (MT) for the 2024/25 marketing year, marking the first surplus in four years. Additionally, ICCO projects that global cocoa production will increase by +7.8% year-over-year to 4.84 million metric tons.

Export Data and Demand Challenges

On a bearish note, Nigeria announced last Thursday that its cocoa exports jumped +27% year-over-year in January, totaling 46,970 MT. As the fifth-largest cocoa producer globally, Nigeria’s increased supply adds to the overall market dynamics.

However, concerns about demand are also prominent. Executives from leading chocolate manufacturers Hershey and Mondelez cautioned that high cocoa prices are dampening consumer demand. On February 4, Mondelez CFO Zarmella noted signs of slowing cocoa consumption, particularly in North America. Moreover, on February 18, the company warned that rising cocoa prices could lead to chocolate price increases of up to 50%, further impacting demand.

Similarly, Hershey’s executives admitted on February 6 that elevated cocoa prices are forcing them to alter their recipes by substituting cocoa with alternative ingredients.

Quarterly Grinding Reports Illustrate Demand Decline

The high prices of cocoa led to reduced demand in the fourth quarter, as demonstrated by quarterly grinding reports. On January 9, the European Cocoa Association announced that Q4 European cocoa grindings fell -5.3% year-over-year to 331,853 MT, marking the lowest level in over four years. In Asia, the Cocoa Association reported a slight decline in Q4 grindings of -0.5% year-over-year to 210,111 MT, also the lowest in four years. Furthermore, the National Confectioners Association reported a -1.2% year-over-year drop in Q4 North American cocoa bean grindings to 102,761 MT.

Export Trends from Ivory Coast and Global Inventories

Concerns regarding slowing cocoa exports from the Ivory Coast may support cocoa prices. Government data showed that farmers shipped 1.39 million MT of cocoa to ports from October 1 to March 2, a +17% increase from last year; however, this growth has slowed compared to the 35% rise seen in December.

Tight global cocoa inventories remain a bullish factor for prices. ICE-monitored cocoa inventories at U.S. ports have decreased over the past 1.5 years, reaching a 21-year low of 1,263,493 bags on January 24. As of Monday, cocoa inventories have rebounded to a 2.75-month high of 1,463,836 bags.

Additionally, reduced cocoa supplies from Ghana, the world’s second-largest cocoa producer, are contributing to price support. Ghana’s cocoa regulator, Cocobod, cut its harvest forecast for the 2024/25 season for the second time this year to 617,500 MT, which is down -5% from an earlier estimate of 650,000 MT.

Global Cocoa Deficit Highlights Supply Concerns

The ICCO stated last Friday that the global cocoa deficit for 2023/24 is projected at -441,000 MT, the largest in over 60 years. Production is expected to decline by -13.1% year-over-year to 4.380 million MT. The ICCO also noted that the cocoa stocks-to-grindings ratio for 2023/24 is 27.0%, marking 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

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