Cocoa prices faced significant declines recently, with May contracts for New York cocoa dropping by 5.39% and London cocoa prices falling by 5.87% on Monday. The market is currently reacting to fears of a global trade war, which has fostered a cautious approach among investors, negatively impacting cocoa prices. There are growing concerns that increasing tariffs could further diminish consumer demand for cocoa and related products as tensions escalate.
On the previous Thursday, cocoa prices in New York had surged to a 1.25-month high due to indications of an underwhelming mid-crop cocoa harvest in West Africa. Rabobank reported that recent rains have been inadequate for crop growth, and surveys of cocoa farmers in major producing countries like Ivory Coast and Ghana have raised alarms about crop yield expectations.
The anticipated mid-crop in Ivory Coast, which is the smaller of the two annual harvests and typically begins in April, is particularly concerning. The average forecast for this year’s mid-crop is around 400,000 metric tons, which represents a 9% decrease compared to last year’s output of 440,000 metric tons.
Despite a recent uptick in cocoa exports from Ivory Coast, which reported 1.44 million metric tons shipped from October 1 to April 6, marking an 11% increase from the previous year, the growth has slowed compared to a 35% increase seen in December. The rising rate of exports has provided some support to cocoa prices, although the overall market trend has been less favorable.
In the past seven weeks, cocoa prices have been on the defensive, with New York cocoa hitting a 4.75-month low. The International Cocoa Organization (ICCO) recently projected a global cocoa surplus of 142,000 metric tons for the 2024/25 season, highlighting a potential shift in the market that could lead to lower prices. The ICCO also forecasts a global production increase of 7.8% year-over-year, reaching 4.84 million metric tons.
Cocoa inventory levels have also rebounded, adding to the bearish outlook for prices. After reaching a 21-year low of 1,263,493 bags on January 24, stocks monitored by ICE at U.S. ports rose to a high of 1,863,172 bags recently. Concerns over waning demand among consumers are increasingly influencing cocoa prices, with executives from major chocolate companies like Hershey and Mondelez cautioning that elevated cocoa prices are negatively affecting sales. Mondelez’s CFO noted signs of declining cocoa consumption in certain regions, particularly North America.
The potential for further price increases, estimated at up to 50%, could further suppress chocolate demand. Hershey has indicated that high cocoa prices are prompting recipe adjustments, leading the company to replace cocoa with alternative ingredients to mitigate costs. Additional data from Nigeria shows a 27% increase in cocoa exports year-over-year in January, contributing to the oversupply concern amid high prices.
The impact of elevated cocoa prices on demand is evidenced by quarterly grinding reports. The European Cocoa Association indicated a 5.3% year-over-year decline in cocoa grindings in Europe for the last quarter — the most substantial dip in over four years. Similarly, the Cocoa Association of Asia recorded a slight 0.5% decrease in grindings, and North America saw a 1.2% decline as well.
Moreover, supply prospects in Ghana, the world’s second-largest cocoa producer, are also tightening. The Ghana Cocoa Board has revised its harvest forecast for 2024/25 downward to 617,500 metric tons, a 5% reduction from earlier projections.
The ICCO highlighted that for the 2023/24 season, the global cocoa market is facing a significant deficit, estimated at 441,000 metric tons — the largest shortfall in over 60 years. They reported a decline in global production to 4.38 million metric tons, with the stocks to grindings ratio reaching a 46-year low at 27.0%. This combination of decreasing production and rising concerns about demand and trade dynamics is shaping the current cocoa market landscape, leading observers to remain cautious about future price movements.
