Cocoa Prices Supported by Slowing Pace of Ivory Coast Cocoa Exports

Cocoa prices are mixed as concerns over tighter future supplies due to slowing Ivory Coast exports and poor mid-crop quality are offset by favorable West African weather forecasts and rebounding cocoa inventories in US ports. The Ivory Coast's mid-crop is estimated to be down 9% from last year, with processors reporting quality issues, while concerns about waning consumer demand amid high prices and potential tariffs also weigh on prices, despite better-than-expected Q1 global cocoa grindings. The ICCO forecasts a global cocoa surplus for 2024/25 after a significant deficit in 2023/24, adding to the uncertainty surrounding future price movements.

Analysis

Cocoa prices are exhibiting mixed behavior, with July ICE NY cocoa (CCN25) up +0.05% while July ICE London cocoa #7 (CAN25) declined -0.89%, the latter partly influenced by the British pound (^GBPUSD) rallying to a 3-1/4 year high. Key support for prices derives from the slowing rate of Ivory Coast cocoa exports; although shipments from October 1 to May 25 reached 1.6 MMT, a 9.6% year-over-year increase, this represents a marked deceleration from the 35% year-over-year growth seen in December, indicating potentially tightening future supplies. Further bolstering prices are ongoing drought conditions across more than a third of Ghana and the Ivory Coast, despite recent beneficial rains, and significant quality issues with the Ivory Coast's mid-crop, which is currently being harvested. Processors report rejecting beans due to 5% to 6% poor quality content, compared with 1% during the main crop, with this mid-crop estimated at 400,000 MT, down 9% from last year. Compounding these supply concerns, Ghana, the world's second-largest producer, had its 2024/25 cocoa harvest forecast cut for the second time by Cocobod to 617,500 MT, a 5% reduction from an August estimate. The International Cocoa Organization (ICCO) highlighted a severe 2023/24 global cocoa deficit of -441,000 MT, the largest in over 60 years, with production falling -13.1% year-over-year and the global stocks/grindings ratio hitting a 46-year low of 27.0%.

Conversely, several factors are exerting downward pressure on cocoa prices. Forecasts for continued favorable rain in West Africa are expected to aid crop development. A notable rebound in ICE-monitored cocoa inventories held in US ports, which climbed to an 8-month high of 2,177,8904 bags last Friday, suggests some easing of immediate supply tightness. Significant headwinds also come from concerns over waning consumer demand due to persistently high prices and the threat of tariffs. This is substantiated by Barry Callebaut AG cutting its annual sales guidance. Furthermore, The Hershey Company (HSY) reported a 14% fall in Q1 sales and anticipates $15-$20 million in Q2 tariff costs, while Mondelez International (MDLZ) noted weaker-than-expected Q1 sales as consumers reduce snack purchases amid economic uncertainty. While Q1 global cocoa grindings in North America (-2.5% y/y), Europe (-3.7% y/y), and Asia (-3.4% y/y) declined less than initially feared, the overarching narrative of demand destruction persists. Looking ahead, the ICCO projects a global cocoa surplus of 142,000 MT for the 2024/25 season, the first in four years, with global production anticipated to rise by 7.8% y/y to 4.84 MMT, potentially signaling price moderation in the medium term.

Key Decisions for Investors

• Monitor West African weather conditions, Ivory Coast export data, and mid-crop quality reports vigilantly, as these factors are currently key determinants of short-term price volatility in the cocoa market.
• Exercise caution with investments in chocolate manufacturers such as Hershey (HSY) and Mondelez (MDLZ), given their reported Q1 sales declines, negative sentiment signals, and explicit warnings regarding tariff impacts and high input costs, which pose risks to margins and volumes.
• Factor the ICCO's forecast of a 142,000 MT global cocoa surplus for the 2024/25 season into medium-term strategies, as this anticipated shift from the current historic deficit could lead to an easing of supply pressures and potentially lower prices.
• Be aware of currency market dynamics, particularly the strength of the British pound impacting London-traded cocoa futures, and assess how FX movements could affect arbitrage opportunities or necessitate hedging strategies.