Cocoa Prices Fall on Favorable West Africa Growing Conditions

Cocoa prices are sharply lower today, primarily due to expectations of a global surplus for 2024/25, favorable West African weather conditions, and weak global demand reflected in significant Q3 cocoa grinding declines in Asia and Europe. This bearish sentiment, further supported by surging cocoa arrivals in Ghana, contrasts with recent data showing a 7-month low in US port inventories and a slowdown in Ivory Coast exports. While the International Cocoa Organization (ICCO) revised the 2023/24 global deficit to a 60-year high, it projects a 142,000 MT surplus for 2024/25, marking the first surplus in four years.

Analysis

Cocoa prices (ICE NY CCZ25: -2.09%, ICE London CAZ25: -3.50%) are sharply lower today, primarily driven by expectations of a global surplus for the 2024/25 season. This bearish sentiment is fueled by favorable West African weather conditions, with Mondelez reporting a 7% above five-year average cocoa pod count in the region. Surging cocoa arrivals in Ghana, reaching 50,440 MT in the four weeks ending September 4 compared to 11,000 MT last year, further contribute to supply pressure.

Weak global demand is a significant bearish factor, evidenced by substantial Q3 cocoa grinding declines. Asia's grindings fell -17% y/y to a 9-year low, while Europe saw a -4.8% y/y drop, marking a 10-year low for Q3. North American chocolate candy sales volume also decreased by over -21% in the 13 weeks ending September 7, indicating consumer demand erosion due to high prices.

Despite the overall bearish outlook, some supply-side factors offer support, such as a -24% y/y slowdown in Ivory Coast cocoa exports to ports (215,219 MT) and US port inventories falling to a 7-month low of 1,843,721 bags. However, the International Cocoa Organization (ICCO) projects a 142,000 MT global cocoa surplus for 2024/25, marking the first surplus in four years, following a record 494,000 MT deficit in 2023/24. This shift from a significant deficit to an anticipated surplus is a key driver of current price action.

Key Decisions for Investors

• Monitor ICCO's 2024/25 surplus projection and actual West African harvest data for confirmation of increased supply, given the current price weakness.
• Evaluate the sustainability of demand erosion, particularly in key regions like Asia and Europe, as continued declines could further pressure prices.
• Consider hedging strategies or short positions in cocoa futures, contingent on further confirmation of the projected global surplus and persistent weak demand indicators.