Cocoa Market Update: Trends and Insights
Today, cocoa prices are showing mixed results, with the New York cocoa market witnessing a slight increase while the London market has experienced a decline. The fluctuations in cocoa prices are influenced by various factors, particularly the recent changes in cocoa exports from the Ivory Coast and concerns about weather conditions affecting crop yields.
As of the latest reports, cocoa export activity from the Ivory Coast is slowing down, leading to expectations of a tighter supply in the future. Recent government statistics indicate that farmers in the Ivory Coast have shipped 1.6 million metric tons (MMT) of cocoa from October 1 to May 25 this marketing year. This represents a 9.6% increase from the previous year but is down significantly from the earlier 35% increase witnessed in December.
The current strength of the British pound is exerting downward pressure on cocoa prices in the London market. The pound recently surged to its highest level in over three years, which impacts the pricing of cocoa futures traded in pounds sterling.
Weather forecasts are contributing to market dynamics as well. Negative sentiment emerged last Friday when cocoa prices fell to a two-week low, predominantly due to predictions of favorable rainfall across West Africa. This rain is expected to support the cocoa crops in the primary production regions, which have struggled with drought conditions affecting large areas.
Globally monitored cocoa inventories have seen a rebound, affecting prices negatively. After hitting a 21-year low of approximately 1.2 million bags at the end of January, stocks at U.S. ports rose to an eight-month high, reaching about 2.2 million bags recently. This uptick in inventory levels typically drives prices down.
Regarding the quality of the current cocoa mid-crop being harvested in the Ivory Coast, processor complaints have surfaced. Reports suggest that between 5% and 6% of the beans are of poor quality—substantially higher than the 1% seen during the main crop season. This situation arises partly from irregular rainfall that delayed growth and negatively impacted the quality of the beans. The average forecast for this year’s mid-crop is around 400,000 MT, marking a 9% decrease from the previous year’s yield of 440,000 MT.
Moreover, concerns surrounding consumer demand for cocoa products are beginning to weigh on market prices. Some major players in the cocoa and chocolate industry have reported declining sales, raising concerns about future demand. Barry Callebaut AG has lowered its annual sales projections, citing high cocoa prices and tax uncertainties. Hershey Co. recently noted a 14% drop in its Q1 sales and forecasts additional costs related to tariffs, potentially contributing to higher chocolate prices and decreased consumer interest. Mondelez International also observed weaker-than-expected sales, attributing it to economic uncertainties and elevated chocolate prices.
Despite some negative outlooks, there are signs of resilience in global cocoa demand. Recent data indicate that North American cocoa grindings fell by just 2.5% year-on-year in Q1, outperforming earlier predictions of a more significant decline. Similarly, European cocoa grindings experienced a smaller yearly drop of 3.7%, and Asian cocoa grindings fell by 3.4%, both less severe than expected.
Additionally, the cocoa supply from Ghana, the second-largest cocoa producer in the world, is tightening. The Ghana Cocoa Board adjusted its harvest predictions for 2024/25 downward for the second time this season to about 617,500 MT, reflecting a 5% reduction from prior estimates.
According to recent findings from the International Cocoa Organization (ICCO), the global cocoa deficit for the 2023/24 season is projected to be the largest in over six decades, with a shortfall of 441,000 MT. Cocoa production is anticipated to decrease by 13.1% year-on-year, falling to approximately 4.38 million MT. Looking forward to 2024/25, ICCO has forecasted a return to surplus, estimating a global cocoa production increase of 7.8% year-on-year to about 4.84 million MT.
As the cocoa market continues to evolve, stakeholders will need to remain vigilant regarding weather influences, quality issues, and consumer demand dynamics to navigate the complexities ahead.
