Cocoa Prices Drop as Weather and Demand Concerns Mount

July ICE NY cocoa (CCN25) closed down -441 (-4.11%) on Thursday, while July ICE London cocoa #7 (CAN25) fell -354 (-4.75%).

Cocoa Prices Hit One-Week Lows

Cocoa prices plummeted on Thursday to a one-week low. The expectations for beneficial rainfall in West Africa, which will support cocoa crop development, significantly impacted prices. Meteorologist Vaisala reported that moderate showers are predicted to continue throughout the week in cocoa-growing regions.

Inventories Pressure Cocoa Prices

Ample cocoa inventories are also contributing to the price decline. ICE-monitored cocoa stocks at U.S. ports reached a 7-3/4 month high, climbing to 2,167,990 bags.

Earlier in the week, NY cocoa had surged to a 3-1/2 month nearest-futures high, driven by a slowdown in cocoa exports from the Ivory Coast, indicating a potential tightening in future supplies. According to government data, from October 1 to May 18, Ivory Coast farmers exported 1.58 million metric tons (MMT) of cocoa, a 10.5% increase from last year, though lower than the 35% rise recorded in December.

Weather Concerns Loom

Adverse weather remains a concern. Despite recent rains, drought continues to affect over one-third of both Ghana and the Ivory Coast, as reported by the African Flood and Drought Monitor.

Quality Issues Affect Mid-Crop

Over the past two weeks, cocoa prices have rallied on concerns regarding the quality of the Ivory Coast’s mid-crop, which is currently being harvested through September. Cocoa processors have reported rejecting truckloads of beans due to quality issues, with 5% to 6% of mid-crop product found to be unsuitable, compared to just 1% during the main crop.

Production Estimates Decline

According to Rabobank, the quality issues are linked to late rains that affected crop growth. The mid-crop, which is typically smaller, is estimated to yield 400,000 MT this year—down 9% from last year’s 440,000 MT.

Supply Rebound and Consumer Demand

The recovery in cocoa inventories is bearish for prices. Since hitting a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories in U.S. ports have surged to a recent high of 2,156,644 bags.

Fears over waning consumer demand for cocoa and related products are also negatively influencing prices. On April 10, Barry Callebaut AG, a major chocolate manufacturer, reduced its annual sales guidance due to high cocoa prices and tariff uncertainties. Additionally, Hershey Co. reported a 14% decrease in Q1 sales and projected $15-$20 million in tariff-related costs for Q2, which would elevate chocolate prices and dampen consumer demand. Mondelez International also noted weaker Q1 sales, attributing the dip to economic concerns and high chocolate prices.

Mixed Signals from Global Cocoa Demand

Furthermore, recent data indicated a stronger-than-expected global cocoa demand. Q1 grindings in North America fell 2.5% year-on-year to 110,278 MT, better than anticipated declines. European cocoa grindings also decreased only 3.7% year-on-year to 353,522 MT, while Asian grindings were down 3.4% year-on-year to 213,898 MT—both smaller declines than expected.

Ghana’s Output Forecasts

Support for prices is also coming from reduced supplies in Ghana, the world’s second-largest cocoa producer. Cocobod, Ghana’s cocoa regulator, has cut its forecast for the 2024/25 cocoa harvest for the second time this season, lowering it to 617,500 MT—which represents a 5% decrease from the previous estimate of 650,000 MT.

Global Cocoa Deficit and Future Projections

The International Cocoa Organization (ICCO) reported on February 28 that the global cocoa deficit for 2023/24 is projected at -441,000 MT, marking the largest deficit in over 60 years. The ICCO also noted a -13.1% year-on-year drop in cocoa production to 4.380 MMT, and stated that the global cocoa stocks-to-grindings ratio had fallen to 27.0%, the lowest in 46 years. For 2024/25, the ICCO forecasts a global cocoa surplus of 142,000 MT, the first surplus in four years, with production expected to rise 7.8% year-on-year to 4.84 MMT.

On the date of publication, Rich Asplund did not hold any positions—either directly or indirectly—in the securities mentioned in this article. All information provided is for informational purposes only. Please refer to the Barchart Disclosure Policy for further details.
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The views expressed in this article represent the author’s own opinions and do not reflect those of any other financial institutions.