Cocoa Prices Surge Amid Quality Concerns and Supply Issues

On Thursday, July ICE NY cocoa (CCN25) closed up +338 (+3.41%), while July ICE London cocoa #7 (CAN25) rose by +264 (+3.73%). Cocoa prices saw a significant rally, with New York cocoa reaching a three-month high and London cocoa hitting a two-and-a-half-month peak.

Quality Concerns Impacting Prices

The recent surge in cocoa prices stems from quality issues linked to the ongoing mid-crop harvest in the Ivory Coast. Processors have reported that about 5% to 6% of the mid-crop cocoa in truckloads is of poor quality, a stark rise from 1% observed during the main crop.

According to Rabobank, late rains have hampered crop growth, contributing to the deterioration in quality. The mid-crop harvest, which typically begins in April, is expected to yield an estimated 400,000 metric tons (MT) this year, a decline of 9% from last year’s 440,000 MT.

Supply Chain Dynamics and Export Trends

Concerns about supply are also supporting cocoa prices, as the pace of cocoa exports from the Ivory Coast has slowed. Government figures released on Monday indicated that farmers shipped 1.56 million MT of cocoa to ports from October 1 to May 11 this marketing year. This represents an 11.4% increase from the previous year but is down from a substantial 35% increase seen in December.

Inventory Rebound and Demand Concerns

On the flip side, current cocoa inventories are rising, which is bearish for prices. After dropping to a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories at U.S. ports have increased to a seven-and-a-half-month high of 2,130,965 bags as of Thursday.

Meanwhile, fears regarding consumer demand for cocoa products are putting downward pressure on prices. Tariff uncertainties may lead to even higher cocoa prices. On April 10, Barry Callebaut AG, a major chocolate manufacturer, revised its annual sales guidance due to these tariffs and elevated cocoa costs. Hershey Co. recently reported a 14% drop in Q1 sales and projected $15-$20 million in tariff-related costs for Q2, indicating potential price hikes. Similarly, Mondelez International noted weaker-than-expected Q1 sales with a decline in snack purchases attributed to rising economic uncertainty and elevated chocolate prices.

Global Cocoa Demand and Future Projections

Despite these concerns, cocoa prices benefit from a positive carryover linked to better-than-expected global demand. Q1 cocoa grindings in North America fell 2.5% year-over-year to 110,278 MT, which was less severe than anticipated. In Europe, Q1 grindings dropped 3.7% year-over-year to 353,522 MT, while in Asia, grindings decreased by 3.4% year-over-year to 213,898 MT, both smaller declines than expected.

Additonally, cocoa supplies from Ghana, the world’s second-largest cocoa producer, may tighten prices further. Ghana’s cocoa regulator, Cocobod, reduced its forecast for the country’s 2024/25 cocoa harvest to 617,500 MT, a 5% decline from earlier estimates.

The International Cocoa Organization (ICCO) reported on February 28 that the 2023/24 global cocoa deficit is expected to be 441,000 MT, the largest deficit recorded in over 60 years. ICCO noted that cocoa production in 2023/24 is projected to fall by 13.1% year-over-year to 4.380 million MT and expects the global stocks-to-grindings ratio to hit a 46-year low at 27.0%. However, looking ahead to 2024/25, ICCO forecasts a rebound with a global surplus of 142,000 MT, marking the first surplus in four years. Production is anticipated to rise by 7.8% year-over-year to 4.84 million MT.

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