Cocoa prices experienced a significant uptick recently, driven by a decline in the value of the dollar, which reached a three-year low. This prompted traders to buy back cocoa futures, resulting in a sharp rise in prices. Specifically, the May ICE New York cocoa contract saw an increase of 5.23%, while the May ICE London cocoa contract rose by 3.69%. However, the gains in London cocoa were somewhat restrained due to a strengthening British pound, which impacted cocoa costs expressed in sterling.
Concerns about a potential drop in consumer demand for cocoa products have been prevalent. A recent downturn in cocoa prices during the previous weeks was linked to fears related to the ongoing trade conflicts and rising tariffs, which are anticipated to elevate cocoa costs further. This uncertainty was underlined by Barry Callebaut AG, a leading global chocolate manufacturer, which lowered its annual sales forecasts in light of the fluctuating cocoa prices and tariffs.
The current state of the cocoa market has seen prices under pressure due to a two-month trend of falling values. Reports have suggested that, as of late February, the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 metric tons for the 2024/25 season, marking the first surplus in four years. This forecast also included an anticipated annual cocoa production increase of 7.8%, expected to reach 4.84 million metric tons.
In terms of cocoa inventories, there has been a notable recovery following a significant drop to a 21-year low earlier this year. The latest figures indicate that cocoa stocks monitored by the ICE in U.S. ports have reached their highest levels in over five months, signaling an improving supply situation.
Meanwhile, the mid-crop cocoa harvest in West Africa has faced challenges. Reports indicate that insufficient rainfall has adversely affected crop development, with surveys showing disappointing results from cocoa farmers in key producing countries like the Ivory Coast and Ghana. These developments have raised concerns about the anticipated mid-crop, which typically begins this month.
For the Ivory Coast, the mid-crop is a vital harvest, and this year’s estimates suggest a production of around 400,000 metric tons, reflecting a 9% decrease from last season. Additionally, there has been a slowdown in cocoa exports from the Ivory Coast. Government data highlighted that exports during this marketing year are up 11% from last year, yet they have diminished compared to December’s significant 35% increase.
The demand for cocoa products is currently under scrutiny. Executives from well-known chocolate manufacturers, such as Hershey and Mondelez, have indicated that rising cocoa prices are negatively impacting consumption. Mondelez’s CFO recently noted a decline in cocoa consumption in regions like North America. Warning signs were also raised by the company regarding a potential rise in chocolate prices, which could be as high as 50%, further limiting demand.
Nigeria, recognized as the fifth-largest cocoa producer globally, has also reported a notable increase in cocoa exports, reflecting a 27% year-on-year rise. These developments illustrate the mixed signals coming from different regions, with high cocoa prices simultaneously diminishing demand.
Observations from chocolate grinding reports revealed that high prices have led to reduced grinding activity. The European Cocoa Association reported a decline of over 5% in Q4 cocoa grindings, the lowest levels experienced in four years. Similarly, the Cocoa Association of Asia noted a slight drop in Asian grindings. North America’s cocoa bean grindings also fell by 1.2% year on year, reflecting a broader trend of diminished demand.
Amid these contrasting dynamics, Ghana’s cocoa supply has also demonstrated signs of tightening. The country’s cocoa regulator, Cocobod, has revised its harvest expectations downward for the 2024/25 season to approximately 617,500 metric tons—5% less than earlier predictions.
According to ICCO’s recent assessments, the 2023/24 global cocoa deficit is projected to be the highest seen in over six decades, estimated at around 441,000 metric tons, while production is anticipated to dip significantly. This presents a unique scenario in the cocoa market, characterized by rising prices amidst fluctuating demand and uncertain supply levels.
The current landscape of the cocoa market is one of both challenge and opportunity, as traders navigate complex global dynamics that influence pricing, demand, and supply.
