Cocoa Prices Fall Amid Supply Concerns and Quality Issues

On Wednesday, July ICE NY cocoa (CCN25) declined by -105 (-1.08%), while July ICE London cocoa #7 (CAN25) fell by -56 (-0.85%).

Cocoa Prices Slump to Two-Week Lows

Cocoa prices dropped to two-week lows, pressured by favorable rain forecasts in West Africa. This rain is expected to support cocoa crop development in the leading cocoa-producing region. Meteorologist Vaisala predicts moderate showers to persist throughout the week in these areas.

Inventories and Export Data Influence Market Sentiment

Rising cocoa inventories are bearish for 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 to an eight-month high of 2,187,668 bags.

Moreover, a slowing pace of cocoa exports from Ivory Coast may signal tighter future supplies. Government data revealed that Ivory Coast farmers exported 1.6 MMT of cocoa from October 1 to May 25, marking a 9.6% increase from last year but down from a 35% increase in December.

Quality Concerns Weighing on Market

Recent weather and drought conditions continue to be a concern for cocoa prices. Last week, NY cocoa reached a three-and-a-half-month high due to weather-related worries, although drought still affects over a third of Ghana and Ivory Coast.

Quality issues with the Ivory Coast mid-crop, being harvested through September, are also contributing to market pressures. Processors report that 5% to 6% of the mid-crop cocoa in transport is of poor quality, compared to 1% during the main harvest.

Forecasts for Future Production Show Declines

Rabobank attributes the poor quality of the Ivory Coast mid-crop to late rain that restricted crop growth. The 2023 mid-crop is estimated at 400,000 MT, which is down 9% from last year’s 440,000 MT.

Consumer Demand and Economic Factors Impacting Prices

Concerns about waning consumer demand are pressuring cocoa prices as fears grow that tariffs could increase cocoa prices. Barry Callebaut AG lowered its annual sales forecast due to high cocoa prices and tariff uncertainties. Hershey Co. reported a 14% decline in Q1 sales and anticipates $15-$20 million in tariff costs for Q2, which may lead to higher chocolate prices and reduced demand. Mondelez International also reported weaker-than-expected sales as consumers cut back on snacks due to economic uncertainty.

Positive Demand Indicators Offer Some Support

On a positive note, recent data showed better-than-expected global cocoa demand. Q1 North American grindings fell by 2.5% year-on-year to 110,278 MT, which was more favorable than the anticipated 5% decline. Similarly, Q1 European and Asian cocoa grindings also showed smaller declines than expected.

Global Cocoa Forecasts Show Future Surplus

Smaller cocoa supplies from Ghana support price stability, as Cocobod recently revised its harvest forecast down to 617,500 MT for 2024/25, a 5% decrease from earlier estimates.

Furthermore, the International Cocoa Organization projected a global cocoa deficit of 441,000 MT for the 2023/24 season, marking the largest deficit in over 60 years. However, a surplus of 142,000 MT is expected for 2024/25, with production projected to increase by 7.8% year-on-year to 4.84 MMT.

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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