Cocoa prices experienced a decline on Monday, with July ICE New York cocoa falling by $85 to settle at $10,182 per ton, reflecting a 0.83% decrease. Meanwhile, July ICE London cocoa slipped $22, or 0.32%, to close at $6,850 per ton. This retreat in cocoa pricing can be attributed primarily to an improved weather forecast for the cocoa-growing regions of West Africa, particularly the Ivory Coast and Ghana, the world’s foremost cocoa producers. Forecasts indicating increased rainfall throughout the week are positively impacting the prospect of cocoa yields in these key nations.
Despite the recent dips in prices, there remain underlying support factors that could counterbalance bearish market sentiments. One significant point of concern is the diminishing pace of cocoa exports from the Ivory Coast. Recent government statistics reveal that from October 1 to June 1, farmers shipped 1.6 million metric tons (MMT) of cocoa, which marks an increase of 6.7% compared to last year. However, this figure is notably lower than the 35% surge observed in December, drawing attention to potential supply bottlenecks.
The volatility affecting cocoa prices reflects broader concerns within the agricultural commodity market. The recent rainfalls are welcomed, yet drought conditions persist, affecting over one-third of Ghana and significant portions of the Ivory Coast. According to the African Flood and Drought Monitor, these drought conditions continue to pose a challenge, limiting full agricultural recovery and crop growth.
Adding complexity to the market dynamics, quality issues plague the ongoing mid-crop harvest in the Ivory Coast, which typically spans from April through September. Reports suggest that cocoa processors are facing challenges with quality, having rejected truckloads of cocoa beans due to an elevated percentage of inferior quality beans. Approximately 5% to 6% of the cocoa in each truckload is reportedly of poor quality, in stark contrast to the 1% recorded during the primary crop harvest. Industry analysts at Rabobank indicate that these quality concerns can be partially linked to rain that arrived late in the growing cycle, impacting overall crop health.
In terms of inventory dynamics, cocoa stocks monitored by the Intercontinental Exchange (ICE) have rebounded significantly since reaching a 21-year low of approximately 1.3 million bags on January 24. By Monday, these stocks rose to an 8.75-month high of 2.26 million bags. Market analysts view this increase in inventories as bearish for cocoa prices, particularly in light of growing concerns that consumer demand for cocoa products may falter. Factors such as rising tariffs and elevated cocoa prices contribute to these downward pressures.
Major confectionery companies are starting to feel the pinch. Barry Callebaut AG, a leading chocolate manufacturer, recently lowered its annual sales forecast, attributing its decision to the dual challenges of high cocoa prices and tariff-induced uncertainties. Additionally, Hershey Co. reported a notable 14% decline in its first-quarter sales, anticipating a tariff impact between $15 million and $20 million in the second quarter. Such economic pressures are expected to drive up chocolate prices, potentially dampening consumer demand. Similarly, Mondelez International noted weaker-than-expected sales results, indicating a shift in consumer preferences as individuals adjust their snacking habits amidst economic uncertainties and high chocolate prices.
Despite these challenges, there are signs of resilience within the cocoa sector. North American cocoa grindings recorded a slight decline of 2.5% year-over-year to 110,278 metric tons, which, while still negative, surpassed expectations of at least a 5% drop. European cocoa grindings experienced a similar pattern, falling 3.7% year-over-year to 353,522 metric tons but also exceeding forecasts for a larger decrease. This trend continued in Asia, where cocoa grindings fell by 3.4% year-over-year to 213,898 metric tons, aligning with a less severe outlook than earlier projections suggested.
The market’s future also hinges on the supply prospects from Ghana, which stands as the second-largest cocoa producer globally. Earlier this year, Cocobod, Ghana’s cocoa regulatory authority, revised its 2024/25 cocoa harvest forecast downward for the second time, now estimating a harvest of 617,500 metric tons—5% less than an earlier forecast of 650,000 metric tons made in August. This reduction may further tighten cocoa supplies, contributing to price stability or even increases should demand continue.
Adding to the complexities of the cocoa market, the International Cocoa Organization (ICCO) recently adjusted its 2023/24 global cocoa deficit estimate to 494,000 metric tons, up from a previously estimated deficit of 441,000 metric tons. This figure reflects the most significant deficiency recorded in over six decades, with the ICCO indicating a 13.1% decline in global cocoa production, falling to 4.38 million metric tons.
Market analysts highlight the broader context of these figures, noting that the current global cocoa stocks-to-grindings ratio sits at 27.0%, the lowest it has been in 46 years. Looking ahead, the ICCO has forecasted a potential cocoa surplus of 142,000 metric tons for the 2024/25 season, marking the first surplus seen in four years. This anticipated surplus is premised on a projected 7.8% year-over-year increase in global cocoa production to approximately 4.84 million metric tons.
The cocoa market remains at a critical juncture, with various factors influencing its trajectory. As weather patterns stabilize, quality concerns linger, and consumer demand fluctuates amidst economic unpredictability, stakeholders from producers to investors must navigate a complex landscape characterized by both opportunity and risk. Balancing the interplay of climate impacts, supply forecasts, and evolving consumer habits will be crucial in determining the path forward for cocoa prices and the broader confectionery market.