Cocoa Prices Jump as President Trump's Tariffs Allowed to Stay in Place

Cocoa prices are sharply higher today, driven by fund short-covering after a temporary reprieve for President Trump's tariff agenda, which will keep cocoa bean costs higher in the US. Despite favorable weather in West Africa and rebounding cocoa inventories in US ports, concerns remain about slowing Ivory Coast exports, drought conditions in key growing regions, and poor quality of the Ivory Coast mid-crop. Lingering concerns about consumer demand due to high prices and potential tariffs continue to weigh on the market, as evidenced by recent sales guidance cuts from major chocolate manufacturers.

Analysis

Cocoa prices experienced a significant daily increase, with July ICE NY cocoa (CCN25) rising +6.83% and July ICE London cocoa #7 (CAN25) up +4.13%, primarily driven by fund short-covering following a US court ruling that temporarily preserved existing tariff structures, implying sustained higher cocoa bean costs in the US. This rally contrasts with the previous week's trend, where NY cocoa hit a 2-1/2 week low and London cocoa a 3-week low, pressured by favorable West African weather and a rebound in ICE-monitored US port inventories to an 8-1/4 month high of 2,197,579 bags. Despite these bearish inventory signals, underlying support for prices stems from slowing Ivory Coast cocoa export growth (up +9.6% y/y from Oct 1 to May 25, decelerating from +35% in December), persistent drought conditions affecting over a third of Ghana and Ivory Coast, and significant quality concerns regarding the Ivory Coast mid-crop, with processors reporting 5-6% poor quality beans and an estimated 9% year-over-year decline in mid-crop volume to 400,000 MT. Conversely, demand-side pressures are evident, with major chocolate manufacturers like Barry Callebaut AG cutting sales guidance, Hershey Co. (HSY) reporting a 14% Q1 sales decline and anticipating $15-$20 million in Q2 tariff costs, and Mondelez International (MDLZ) citing weaker Q1 sales due to consumer cutbacks amidst high prices. However, Q1 global cocoa grindings in North America (-2.5% y/y), Europe (-3.7% y/y), and Asia (-3.4% y/y) fell less than anticipated, suggesting some resilience in demand. Supply tightness is further underscored by Ghana's reduced 2024/25 harvest forecast (617,500 MT) and the ICCO's reported historic 2023/24 global cocoa deficit of -441,000 MT, with the stocks/grindings ratio at a 46-year low of 27.0%. Looking ahead, the ICCO projects a global surplus of 142,000 MT for 2024/25, the first in four years, which could temper long-term price strength.

Key Decisions for Investors

• Investors should anticipate continued high volatility in cocoa futures, driven by the interplay of US tariff developments, West African weather patterns, and crop quality reports.
• Closely monitor upcoming inventory data and Ivory Coast export figures, as these will be critical in assessing the near-term supply-demand balance against the backdrop of a historically tight 2023/24 season.
• For equities like Hershey (HSY) and Mondelez (MDLZ), the sustained high cocoa prices and tariff impacts present headwinds; consider their Q1 performance and cost pressures when evaluating positions, as consumer demand elasticity will be key.
• While current conditions reflect significant supply deficits, the ICCO's forecast for a 2024/25 surplus suggests potential long-term price normalization, warranting a cautious approach to extended bullish exposures without further confirmation of ongoing supply issues.