Cocoa Prices Fall on Expectations for Weak Q2 Demand Figures

Cocoa prices are significantly lower, primarily due to mounting demand concerns highlighted by sharp Q2 declines in Malaysian cocoa processing (-22% y/y) and anticipated weaker European grindings, coupled with Barry Callebaut's reduced sales guidance citing persistently high prices. While the 2023/24 global deficit remains at a 60-year high, bearish sentiment is reinforced by favorable weather in key growing regions, rising U.S. port inventories, and projections for increased production from Ghana, with the International Cocoa Organization forecasting a global surplus for 2024/25.

Analysis

Cocoa futures are experiencing significant downward pressure, with ICE NY cocoa falling 3.37%, driven primarily by escalating concerns over demand destruction. This bearish sentiment is substantiated by leading indicators, including a consensus forecast for a 5% year-over-year decline in Q2 European grindings and a confirmed 22% y/y drop in Q2 Malaysian cocoa processing. The demand-side weakness is further corroborated at the corporate level by chocolate manufacturer Barry Callebaut AG, which reduced its sales volume guidance after reporting a 9.5% drop in its March-May sales volume—the largest quarterly decline in a decade—explicitly citing high cocoa prices. While the market is still contending with a historic 2023/24 global deficit of 494,000 MT and a 46-year low stocks-to-grindings ratio of 27.0%, these factors are being overshadowed by a forward-looking bearish outlook. This outlook is supported by favorable weather in key West African growing regions, a projected 8.3% increase in Ghana's 2025/26 crop, and rising ICE-monitored inventories in U.S. ports to a 10-month high. Critically, the International Cocoa Organization (ICCO) forecasts a shift to a global surplus of 142,000 MT for the 2024/25 season, suggesting the current price-induced demand destruction is paving the way for a market rebalance.

Key Decisions for Investors

• The current price action indicates the market is prioritizing future demand destruction and anticipated supply recovery over the severe, but historical, 2023/24 deficit.
• Investors should closely watch the upcoming Q2 European and North American grinding data, as weak figures would validate the bearish thesis and could trigger further price declines.
• Despite the strong bearish momentum, short positions carry notable risk due to the record-low stocks-to-grindings ratio and reported quality issues with the Ivory Coast mid-crop, which could create near-term supply tightness.
• The forecast shift to a global surplus in 2024/25 suggests that the structural drivers for extremely high prices are weakening, warranting a cautious or bearish stance for longer-term positions until the health of the upcoming main crop is confirmed.