Cocoa Prices Undercut by Projections for Higher Ghana Cocoa Production

Cocoa futures extended their weekly decline, pressured by Ghana's projected 8.3% increase in its 2025/26 crop and a significant rebound in U.S. port inventories, alongside weakening consumer demand evidenced by major chocolate manufacturers' reduced sales and declining Q1 global grindings. Nevertheless, prices retain underlying support from persistent supply concerns in Ivory Coast, including mid-crop harvest disruptions and significant quality issues leading to bean rejections, compounded by the International Cocoa Organization's revised record 2023/24 global deficit of 494,000 MT. While the ICCO forecasts a 2024/25 surplus, the market faces a complex interplay of near-term supply constraints and demand elasticity challenges.

Analysis

Cocoa futures are experiencing significant downward pressure, driven by forward-looking supply optimism and clear signs of demand destruction. The projection of an 8.3% year-over-year increase in Ghana's 2025/26 crop, coupled with the ICCO's forecast of a 142,000 MT global surplus for 2024/25, is weighing on sentiment. This is exacerbated by a rebound in ICE-monitored inventories to a 9-3/4 month high and weakening end-market demand. Major chocolate manufacturers like Hershey and Mondelez reported significant sales declines, with Hershey's Q1 sales falling 14%, directly attributing the weakness to high prices and consumer pullback. This demand erosion is corroborated by declining Q1 cocoa grindings across North America (-2.5%), Europe (-3.7%), and Asia (-3.4%). However, these bearish factors are contrasted by a historically tight current supply situation. The ICCO has widened its 2023/24 global deficit estimate to a 60-year record of -494,000 MT, pushing the stocks-to-grindings ratio to a 46-year low of 27.0%. Near-term supply remains constrained by issues in the Ivory Coast, including harvest disruptions from heavy rain, significant mid-crop quality problems leading to bean rejections, and a projected 9% decline in the mid-crop harvest itself.

Key Decisions for Investors

• Given the conflict between a historically tight 2023/24 supply and projections for a 2024/25 surplus, investors should anticipate continued high volatility and differentiate between short-term bullish catalysts and medium-term bearish pressures from recovering supply and demand destruction.
• Monitor upcoming data on Ivory Coast's mid-crop harvest yields and quality reports, alongside Q2 global grinding figures, as these will be critical indicators of whether supply tightness or demand weakness will dominate price action.
• The negative Q1 results and outlooks for Hershey (HSY) and Mondelez (MDLZ) underscore the material impact of high input costs on confectioners, suggesting a cautious approach to these equities until cocoa prices ease or consumer demand shows signs of stabilization.