Cocoa Prices Recover as Ivory Coast Cocoa Deliveries Slow

Cocoa prices are recovering today, driven by signs of slowing exports from Ivory Coast and shrinking U.S. inventories, despite earlier retreats fueled by expectations of a bumper West African crop and the International Cocoa Organization's (ICCO) forecast for a 2024/25 global surplus. Demand remains a concern, with significant year-over-year declines in Q3 cocoa grindings in Asia and Europe, alongside weak North American chocolate sales. However, the upcoming inclusion of cocoa in the Bloomberg Commodity Index in January is expected to trigger substantial passive fund inflows, estimated at $1.9 billion, creating a complex and potentially volatile market outlook.

Analysis

Cocoa prices are experiencing a recovery today, with December ICE NY cocoa (CCZ25) up +1.03%, primarily driven by a reported 9% year-over-year decline in Ivory Coast cocoa exports (411,979 MT from Oct 1-Nov 8) and shrinking ICE-monitored US inventories, which reached a 7.5-month low. This immediate supply-side support emerges despite recent price retreats fueled by expectations of a bumper West African crop and favorable weather conditions in Ghana.

The broader supply outlook presents conflicting signals; while Nigeria's 2025/26 production is projected to fall 11% and the ICCO revised the 2023/24 global deficit to a 60-year high of -494,000 MT, the ICCO also forecasts a 2024/25 surplus of 142,000 MT with production rising 7.8%. Concurrently, demand indicators are notably weak, with North American chocolate sales down over 21% in the 13 weeks ending September 7, and Q3 cocoa grindings falling 17% in Asia and 4.8% in Europe, reflecting dampened consumer demand due to high prices.

A significant structural market event is the upcoming inclusion of cocoa in the Bloomberg Commodity Index (BCOM) from January, its first in two decades. With BCOM assets totaling $109 billion, cocoa's 1.7% weighting is anticipated to trigger substantial passive fund inflows, estimated at $1.9 billion in futures purchases over 80 days, potentially providing strong upward price pressure irrespective of current fundamental weaknesses.

Key Decisions for Investors

• Investors should closely monitor the impact of the Bloomberg Commodity Index inclusion, as the estimated $1.9 billion in passive fund inflows could provide significant price support, potentially overriding short-term fundamental weaknesses.
• Evaluate the divergence between immediate supply constraints, such as declining Ivory Coast exports and low US inventories, against longer-term forecasts for a 2024/25 global surplus and optimistic West African crop reports.
• Assess the sustainability of demand given significant year-over-year declines in chocolate sales and Q3 grindings in key regions, which could cap price upside despite supply concerns and index-driven buying.