Cocoa prices have experienced a significant increase recently. Reports indicate that July ICE NY cocoa (CCN25) is up by 819 points, representing a gain of 9.01%. Similarly, July ICE London cocoa #7 (CAN25) has risen by 4217 points, equating to a 6.33% increase. This surge in cocoa prices has reached levels not seen in the last two and a half months, primarily driven by quality concerns surrounding the mid-crop harvest from the Ivory Coast.
The Ivory Coast is currently facing challenges with the quality of its cocoa crop, which is being harvested during the mid-crop season. Many cocoa processors are reporting issues, stating that an alarming 5% to 6% of the cocoa beans being delivered from the mid-crop are of poor quality. In contrast, only 1% of the beans had quality issues during the main crop season. Rabobank attributes this decline in quality partly to unexpected rain that hindered optimal crop growth.
This mid-crop is crucial as it is one of two harvests each year, typically beginning in April. Estimates for this year's mid-crop are around 400,000 metric tons, which marks a 9% decrease from last year's total of 440,000 metric tons.
Further affecting cocoa prices is a slowdown in exports from the Ivory Coast. Government data shows that from October 1 to May 11, farmers shipped 1.56 million metric tons of cocoa to ports. While this represents an 11.4% increase from the previous year, it is a notable decline from the 35% increase observed in December.
Additionally, there has been a rebound in cocoa inventories, which is generally bearish for prices. After plummeting to a 21-year low earlier in the year, inventories monitored at U.S. ports have risen to a seven-and-a-half-month high.
Market sentiment is also shifting due to concerns about consumer demand for cocoa products. There are fears that proposed tariffs could elevate already high cocoa prices. Recently, Barry Callebaut AG, one of the largest chocolate manufacturers globally, lowered its annual sales forecast due to the high cost of cocoa and tariff uncertainties.
Hershey Co. has also reported a 14% drop in sales for the first quarter and predicts tariffs could result in additional costs of $15 to $20 million in the second quarter. This situation may further dampen consumer demand as chocolate prices rise. Mondelez International has echoed these concerns, noting weaker-than-expected sales and a general decline in snack purchases in light of economic uncertainty.
Interestingly, while cocoa prices face downward pressure from some areas, recent reports suggest an uptick in global cocoa demand. In the first quarter, North American cocoa grindings saw a minor decline of 2.5%, which was better than the anticipated 5% drop. Similarly, European and Asian cocoa grindings reported smaller than expected declines.
On a concerning note, the International Cocoa Organization (ICCO) has forecasted a global surplus of cocoa for the 2024/25 season. This would mark the first surplus in four years, with a projection of a 7.8% increase in global production.
Moreover, reduced cocoa supplies from Ghana, the world's second-largest cocoa producer, may support higher cocoa prices. The Ghana Cocoa Board has revised its forecast for the 2024/25 cocoa harvest, now estimating it at 617,500 metric tons, a 5% decrease from earlier predictions.
The latest data indicates a significant global cocoa deficit of 441,000 metric tons for the 2023/24 period, the largest in over 60 years. With production down 13.1%, the cocoa stocks-to-grindings ratio has fallen to a 46-year low of 27.0%.
As the cocoa market continues to evolve, the interplay between supply constraints, quality issues, and consumer demand will play crucial roles in shaping future price trajectories. With ongoing uncertainties, market participants will be closely monitoring these developments for potential impacts on the global cocoa landscape.
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