Cocoa Prices Dive as Demand Weakens Amid Prospects of Slower Growth
March ICE NY cocoa (CCH25) today is down -364 (-3.34%), and March ICE London cocoa #7 (CAH25) is down -284 (-3.31%).
Major Chocolate Maker Signals Slowing Demand
Cocoa prices are taking a significant hit today, with New York cocoa reaching a one-month low and London cocoa setting a five-week low. A key factor behind this decline is Mondelez International’s recent earnings call, where CFO Zarmella highlighted a potential slowdown in chocolate demand. He noted, “we are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down.”
Favorable Weather Affects Crop Development
Beneficial rainfall in West Africa is having a positive impact on cocoa tree development, which is contributing to lower cocoa prices. Farmers in the Ivory Coast and Ghana report that the recent rain has helped their crops and led to a re-flowering of cocoa trees.
Export Concerns and Global Supply Factors
While the pace of cocoa exports from Ivory Coast has slowed, there are still some supportive factors for cocoa prices. Recent government data indicated that Ivory Coast farmers have shipped 1.29 million metric tons (MMT) of cocoa to ports this marketing year, an increase of more than 22% from last year. However, this growth rate has narrowed from the 35% rise observed in December.
Additionally, concerns regarding West African cocoa crop production are influencing prices. Forecaster Maxar Technologies has reported that this year’s Harmattan winds are the driest in six years, which is negatively impacting crop conditions. Some farmers in Ivory Coast and Ghana have noticed that their cocoa trees are suffering, with yellowing leaves and withering cocoa pods.
Global Cocoa Inventory Trends
Concerns about a widening global cocoa deficit may also support prices. On January 24, the International Cocoa Organization (ICCO) revealed that global cocoa stockpiles were at 1.041 MMT at the end of the 2023/24 season, down 36% year-over-year and lower than a previous estimate of 1.300 MMT. This points to a potential global cocoa deficit projected by the ICO to be -478,000 metric tons.
Moreover, tight global cocoa inventories are acting as a bullish factor for prices. Cocoa inventories monitored by the ICE in U.S. ports have been declining over the past 18 months, reaching a 21-year low of 1,263,493 bags on January 24.
Hershey’s High Stakes Cocoa Purchase
The cocoa market is also seeing interest from major players. Hershey Co. has sought CFTC approval to buy a substantial amount of cocoa through the ICE Futures Exchange due to tight global supplies. According to Bloomberg, Hershey aims to purchase over 90,000 MMT of cocoa on ICE Futures US, significantly exceeding current limits.
Historical Context of Cocoa Prices
Just last December, NY Cocoa reached an all-time nearest-futures high, while London Cocoa hit a nine-month nearest-futures high, reflecting concerns about the West African mid-crop outlook. Maxar Technologies indicated that dry conditions would impact next year’s cocoa crop, adding to the uncertainty surrounding cocoa supplies.
Diminishing Demand Metrics
Despite various supportive elements, a troubling factor remains—high cocoa prices are leading to decreased demand. The European Cocoa Association reported a 5.3% drop in Q4 European cocoa grindings year-over-year, hitting the lowest level in over four years. Additionally, cacao grindings in Asia experienced a decline of 0.5% during the same period.
Nigeria’s Exponential Cocoa Export Growth
On the other hand, rising cocoa exports from Nigeria, the sixth-largest cocoa producer, present further bearish sentiment for prices. Nigeria’s December cocoa exports surged by 87% year-over-year, totaling 46,696 MT.
Changing Production Estimates in Ivory Coast and Ghana
Looking ahead, the Ivory Coast’s regulatory body, Le Conseil Cafe-Cacao, has adjusted its 2024/25 cocoa production forecast, raising it to a range of 2.1-2.2 MMT from an earlier estimate of 2.0 MMT.
Conversely, Ghana’s Cocoa Board cut its 2024/25 production estimate to 650,000 MT from a previous forecast of 700,000 MT. This adjustment reflects challenges posed by adverse weather and crop disease, with Ghana’s 2023/24 cocoa harvest plummeting to a 23-year low of 425,000 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 are solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.
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