Cocoa Prices Rise Amid Global Demand and Supply Fluctuations

May ICE NY cocoa (CCK25) is currently up +269 (+3.32%), while May ICE London cocoa #7 (CAK25) has risen by +220 (+3.77%).

Today’s surge in cocoa prices signals better-than-expected global demand. In Q1, European cocoa grindings fell -3.7% year-on-year to 353,522 MT, which is a smaller decline than the anticipated -5% drop. Similarly, Asian cocoa grindings decreased -3.4% year-on-year to 213,898 MT, again better than the predicted decline of at least -5%.

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Recently, both NY and London cocoa experienced significant declines; last Wednesday, NY cocoa reached a one-month low, while London cocoa hit a five-month low. Concerns surrounding consumer demand due to escalating global trade tensions and rising tariffs contributed to these drops. Additionally, Barry Callebaut AG, one of the largest chocolate producers globally, lowered its annual sales guidance due to uncertainties associated with high cocoa prices and tariffs. Recent reports show that Malaysia experienced a -15.3% year-on-year decline in Q1 cocoa processing, totaling 84,192 MT, while Brazil reported a -13% year-on-year decrease in cocoa bean grindings, reaching 52,135 MT. This Thursday, cocoa grinding data from Asia, Europe, and North America will be released.

Cocoa prices have been under pressure from an improving supply outlook. The International Cocoa Organization (ICCO), on February 28, predicted a global cocoa surplus of 142,000 MT for the 2024/25 season, marking the first surplus in four years. The ICCO also anticipates a +7.8% year-on-year increase in global cocoa production, projecting it to reach 4.84 MMT in 2024/25.

Meanwhile, improvements in cocoa inventories are causing downward pressure on prices. After hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports have rebounded, reaching a five-and-three-quarter-month high of 1,883,819 bags this Wednesday.

On April 3, NY cocoa climbed to a one-and-three-quarter-month high fueled by concerns over weak mid-crop cocoa harvests in West Africa. Rabobank reported that late rains limited crop growth, and surveys of cocoa farmers in the Ivory Coast and Ghana indicated disappointing results.

Concerns regarding the Ivory Coast’s upcoming mid-crop provide additional support for cocoa prices. The mid-crop, which is the smaller of the two annual harvests, typically commences this month. Current estimates for this season’s Ivory Coast mid-crop stand at 400,000 MT, down -9% from last year’s 440,000 MT.

Data from the Ivory Coast indicates a slowdown in cocoa exports, which is supportive of prices. As of Monday, farmers exported 1.45 MMT of cocoa to ports for this marketing year from October 1 through April 13. This amount reflects a +10.7% year-on-year increase but is lower than the 35% rise reported in December.

Despite some positive signals, demand concerns continue to weigh on cocoa prices. Executives from Hershey and Mondelez have recently indicated that high cocoa prices are adversely affecting demand. Mondelez warned on February 4 about potential slowdowns in chocolate demand, particularly in North America. On February 18, the company stated that chocolate prices could rise by as much as 50% due to surging cocoa costs, which would further dampen demand. Hershey has also noted on February 6 that high cocoa prices compel them to reformulate recipes, substituting cocoa with alternative ingredients.

Moreover, on the bearish side, Nigeria reported a strong performance in January with cocoa exports surging +27% year-on-year to 46,970 MT, maintaining its position as the world’s fifth-largest cocoa producer.

Hence, high cocoa prices adversely impacted demand in Q4, as reflected in the latest grinding reports. The European Cocoa Association reported that Q4 European cocoa grindings fell -5.3% year-on-year to 331,853 MT, marking the lowest figures seen in over four years. Additionally, the Cocoa Association of Asia recorded a -0.5% year-on-year decrease in Q4 cocoa grindings to 210,111 MT, also the lowest in four years. The National Confectioners Association indicated that Q4 North American cocoa bean grindings fell -1.2% year-on-year to 102,761 MT.

Smaller cocoa supplies from Ghana, the second-largest cocoa producer globally, are providing additional support for prices. Ghana’s cocoa regulator, Cocobod, recently reduced its forecast for the 2024/25 cocoa harvest for the second time this season to 617,500 MT, down -5% from an earlier estimate of 650,000 MT.

The ICCO reported on February 28 that the 2023/24 global cocoa deficit is -441,000 MT, the largest shortfall in over 60 years. It also indicated that global cocoa production for 2023/24 fell -13.1% year-on-year to 4.380 MMT. The cocoa stocks/grindings ratio for 2023/24 stands 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 is solely for informational purposes. For more information, please view the Barchart Disclosure Policy
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