Cocoa prices on the Intercontinental Exchange (ICE) experienced a significant decline on Monday, with July contracts for both New York and London cocoa falling by 3.24% and 3.33%, respectively. The downturn came after an early rally and was primarily attributed to weather conditions in West Africa that are expected to favor cocoa crop development. Meteorological reports indicate that rainfall is anticipated in cocoa-producing regions of the Ivory Coast and Ghana, providing optimistic prospects for the upcoming harvest.
The reversal in cocoa prices signals a broader market trend, reflecting both inventory dynamics and export performance from the Ivory Coast, the world’s largest cocoa producer. Inventory levels monitored by ICE in U.S. ports have seen a considerable rebound since they hit a 21-year low at the beginning of the year. As of Monday, these inventories reached an eight-and-a-half-month high of 2,202,098 bags, up from a low of 1,263,493 bags recorded on January 24. The increase in stocks typically exerts a bearish effect on prices, yet the current climate of reduced export rates from Ivory Coast suggests potential tightening in future cocoa supplies.
Government data shows that cocoa exports from the Ivory Coast have totaled 1.6 million metric tons (MMT) for the marketing year spanning October 1 to June 1. This figure marks a 6.7% increase compared to the previous year, although it is considerably lower than the 35% growth noted in December. Despite recent favorable weather patterns, concerns persist regarding the impact of drought conditions, which have affected more than a third of both Ghana and the Ivory Coast, according to the African Flood and Drought Monitor.
In addition to weather-related issues, market participants are raising alarms about the quality of the mid-crop cocoa currently being harvested in the Ivory Coast. Cocoa processors have reported a notably higher rejection rate of truckloads due to quality concerns, with estimates suggesting that 5% to 6% of the mid-crop cocoa is of poor quality—significantly higher than the 1% observed during the main crop season. Rabobank has indicated that delayed rainfall has compounded challenges, hampering crop growth and yielding subpar beans.
The mid-crop, which is the smaller of the two annual cocoa harvests, typically commences in April. Estimates for this year’s mid-crop in the Ivory Coast hover around 400,000 metric tons, reflecting a 9% decrease from the previous year’s total of 440,000 metric tons. This decline raises concerns over supply fluctuations as the market grapples with shifting demand dynamics.
Factors weighing on cocoa prices include apprehensions about diminishing consumer demand for cocoa products, exacerbated by the potential imposition of tariffs that could further inflate already high cocoa prices. On April 10, Barry Callebaut AG, a major player in the global chocolate industry, revised its annual sales forecast downward, citing the double pressure of elevated cocoa prices and tariff uncertainties. Hershey Co. has also reported a stark 14% decline in first-quarter sales, foreseeing tariff expenses ranging from $15 million to $20 million in the second quarter, which could prompt price increases on chocolate products and subsequently dampen consumer demand.
Market analysts are also noting that Mondelez International has faced underwhelming first-quarter sales figures, attributing this to changing consumer behaviors in response to economic uncertainty and soaring chocolate prices. However, amidst these challenges, there are glimmers of optimism based on better-than-expected global cocoa demand indicators. North American cocoa grindings for the first quarter experienced a more moderate decline of 2.5% year-over-year, totaling 110,278 metric tons. Similarly, European grindings fell by 3.7% year-over-year to 353,522 metric tons, while Asian grindings had a 3.4% decrease, totaling 213,898 metric tons—both lower than earlier pessimistic projections.
The dynamics of cocoa supply are further complicated by decreasing outputs from Ghana, the second-largest cocoa producer globally. In December, Ghana’s cocoa regulatory body, Cocobod, once again revised its forecasts for the 2024/25 cocoa harvest down to 617,500 metric tons, reflecting a 5% cut from earlier estimates of 650,000 metric tons. This adjustment adds to the tight supply narrative as the market forecasts potential deficits.
According to the International Cocoa Organization (ICCO), the global cocoa market is facing a substantial deficit, now projected at 494,000 metric tons for the 2023/24 cycle—an increase from the previous estimate of 441,000 metric tons. This shortfall, the largest recorded in over six decades, is accompanied by a 13.1% year-over-year drop in global cocoa production, which is estimated at 4.380 million metric tons for this cycle. Concurrently, the stocks-to-grindings ratio has plummeted to a 46-year low of 27.0%.
Looking beyond the immediate challenges, the ICCO anticipates a potential turnaround for the 2024/25 harvest season, forecasting a slight surplus of 142,000 metric tons—an encouraging pivot after four consecutive years of deficits. The organization projects an increase in global cocoa production, estimating a rise of 7.8% year-over-year to reach 4.84 million metric tons.
In summary, cocoa prices are navigating a complex landscape of inventory recovery, environmental challenges, and shifting demand dynamics. The interplay of weather conditions, market responses to high prices, and evolving consumer behavior will significantly influence the future trajectory of cocoa markets. As these factors unfold, stakeholders across the agricultural commodity spectrum remain vigilant, poised to respond to the intricate and often unpredictable nature of cocoa trading.