Cocoa prices recently experienced a notable decline amidst a backdrop of fluctuating global demand and weather-related concerns impacting supply. On Friday, July cocoa futures on the ICE exchange in New York fell by $90 per metric ton, closing at $9,841, marking a 0.91 percent decline. Similarly, London’s cocoa futures dropped by £169, or 2.56 percent, ending at £6,404. This price drop was influenced largely by a strengthening U.S. dollar and optimistic forecasts for rainfall in key cocoa-producing regions of Western Africa, particularly in the Ivory Coast and Ghana, where moisture levels could improve crop yields.
This downward trend raises flags about potential repercussions on the global cocoa market, especially as persistent geopolitical tensions, notably the ongoing conflict between Israel and Iran, cast a shadow of uncertainty on the wider commodity markets. Investors express concern that an extended period of conflict could adversely affect global demand for a variety of commodities, including cocoa, as economic stability hangs in the balance.
Despite recent pressures, signs of contracting cocoa exports have provided some degree of price support. Notably, Nigeria, recognized as the world’s fourth-largest cocoa exporter, reported an 11 percent year-over-year drop in cocoa exports for April, totaling 18,561 metric tons. This decline, set against a backdrop of rebounding inventories, provides a complex picture for cocoa prices. Since reaching a staggering low of 1,263,493 bags in January— the lowest level witnessed in over two decades— ICE-monitored cocoa inventories in U.S. ports surged to a nine-month high of 2,275,693 bags as of last week.
This particular rebound in inventory raises alarms about potential oversupply in the market, which would further pressure prices downwards. Compounding the issue is data from the Ivory Coast, where shipments this marketing year, which commenced on October 1, have seen an overall increase. While shipments of 1.64 million metric tons represent a 7.2 percent uptick compared to the previous season, this number is a significant step down from the previous year’s monumental growth of 35 percent seen in December. This slowing pace in exports could signal tighter future supplies, especially as late rains have contributed to ongoing drought conditions affecting more than a third of the cocoa-growing areas in both Ghana and the Ivory Coast.
Furthermore, processors are reporting serious quality issues with the mid-crop cocoa currently being harvested. The mid-crop, which constitutes the smaller harvest cycle, is generating a rejection rate of approximately 5 to 6 percent of poor-quality beans within truckloads, significantly higher than the 1 percent seen during the main harvest. Such concerns over quality can directly impact market sentiment, hindering the price recovery efforts for cocoa.
According to Rabobank, these quality issues are closely linked to the delayed rainfall in the region, which has stunted crop development and resulted in early-stage challenges for farmers. Estimates for this year’s mid-crop yield in the Ivory Coast are currently set at 400,000 metric tons, indicating a 9 percent drop from last year’s harvest of 440,000 metric tons.
Simultaneously, consumer demand for cocoa-derived products is facing significant headwinds. High cocoa prices have prompted leading chocolate manufacturers to adjust their sales forecasts. Barry Callebaut, one of the largest chocolate makers globally, recently issued a warning about lowered annual sales projections, attributing the decline largely to steep cocoa prices and uncertainty surrounding tariffs. In parallel, Hershey Co. reported a 14 percent fall in first-quarter sales, forecasting additional tariff-related costs of $15 to $20 million in the second quarter, which are expected to drive chocolate prices higher and stifle consumer demand.
This trend reflects a broader contraction in the cocoa processing sector. In the first quarter, North American cocoa grindings fell by 2.5 percent year over year, totaling 110,278 metric tons, while European and Asian grindings dipped by 3.7 percent and 3.4 percent, respectively. Such declines in processing volumes point to a tightening of demand in a market already grappling with high prices.
Further complicating the outlook, the International Cocoa Organization (ICCO) revised its forecast for the 2023/24 global cocoa deficit to nearly half a million metric tons, marking the highest deficit recorded in over six decades. This represents an increase from its earlier estimates of 441,000 metric tons. The ICCO now projects that cocoa production could drop approximately 13.1 percent year over year to about 4.38 million metric tons. In contrast, the organization forecasts a possible surplus of 142,000 metric tons in the 2024/25 period, the first positive outlook the market has seen in four years, with anticipated production growth projected at 7.8 percent.
Navigating these complexities, market participants must remain vigilant about geopolitical dynamics, supply chain factors, and evolving consumer behavior, all of which continue to shape the cocoa landscape. As cocoa prices adjust to these pressures, the interplay between supply and demand will be essential in determining future market conditions. While current financial metrics suggest a tightening of available cocoa, market forecasts signal caution as both external and internal pressures could heavily influence the commodity’s trajectory in the coming months. In a marketplace where uncertainty reigns, stakeholders, from farmers to financial institutions, will need to brace for volatility and adapt their strategies accordingly.