Cocoa Prices Fall on Favorable West Africa Growing Conditions

Cocoa prices closed sharply lower on Monday, driven by expectations of a global surplus for the 2024/25 season, as the International Cocoa Organization (ICCO) projects a 142,000 MT surplus—the first in four years—following a record 494,000 MT deficit in 2023/24. This outlook is supported by favorable West African weather and higher cocoa pod counts, despite some regional export slowdowns and tight inventories. Concurrently, weak global demand, evidenced by significant Q3 declines in Asian (-17%) and European (-4.8%) cocoa grindings and a 21% drop in North American chocolate candy sales, further pressured prices, signaling a potential market rebalancing.

Analysis

Cocoa futures (ICE NY, ICE London) experienced a sharp decline of -2.17% and -3.23% respectively, driven by the International Cocoa Organization's (ICCO) projection of a 142,000 MT global surplus for 2024/25, marking the first surplus in four years. This contrasts sharply with the record 494,000 MT deficit reported for 2023/24, where production fell -13.1% year-over-year. The shift is largely attributed to an estimated 7.8% increase in global production for 2024/25.

Supply dynamics present a mixed picture; favorable West African weather and a 7% increase in cocoa pod counts (Mondelez) signal robust output, further supported by surging Ghana deliveries. However, Ivory Coast's exports to ports are down -24% year-over-year, and ICE-monitored US inventories hit a 7-month low, providing some price support. Nigeria's projected -11% production decline for 2025/26 also offers a counter-balance to the overall surplus narrative.

Compounding the bearish sentiment is significant weakness in global demand. Q3 cocoa grindings fell -17% in Asia and -4.8% in Europe, reaching 9-year and 10-year lows respectively. North American chocolate candy sales volumes also dropped over -21% in the 13 weeks ending September 7, indicating that high cocoa prices and tariffs are actively dampening consumer demand.

Key Decisions for Investors

• Investors should closely monitor actual West African harvest yields and ICCO's 2024/25 surplus estimates for confirmation of the projected market rebalancing.
• Given the significant decline in global grindings and chocolate sales, investors should assess the elasticity of demand for cocoa products and its potential for further price pressure.
• Consider potential benefits for chocolate manufacturers (e.g., MDLZ) from lower input costs, which could improve their margins despite reduced sales volumes.