Cocoa Prices Rebound as ICE Inventories Fall

Cocoa prices closed higher on Thursday, recovering from early losses due to short covering driven by shrinking ICE-monitored US inventories and a weaker British pound. This rebound occurred despite significant demand concerns, including disappointing Halloween sales and substantial year-over-year declines in Q3 Asian and European cocoa grindings. While the International Cocoa Organization (ICCO) revised the 2023/24 global deficit to a 60-year high, underscoring current supply tightness, it also projects a 142,000 MT surplus for 2024/25, marking the first surplus in four years and suggesting a potential future easing of supply pressures.

Analysis

Cocoa prices (CCZ25, CAZ25) closed higher on Thursday, recovering from early losses due to short covering, primarily driven by ICE-monitored US cocoa inventories falling to a 7-month low. A weaker British pound, hitting a 6.5-month low, also supported London cocoa prices. This rebound occurred despite a "mixed" sentiment and "uncertain" tone in the market.

Significant demand concerns persist, with Hershey's CEO reporting "disappointing" Halloween sales and Q3 Asia and Europe cocoa grindings falling -17% and -4.8% year-over-year, respectively, reaching multi-year lows. North American chocolate candy sales volume also declined over -21% in the 13 weeks ending September 7, indicating broader demand weakness.

The International Cocoa Organization (ICCO) revised the 2023/24 global deficit to a 60-year high of -494,000 MT, with production down -13.1% y/y, leading to a 46-year low stocks-to-grindings ratio of 27.0%. This underscores current supply tightness. However, ICCO projects a 2024/25 global surplus of 142,000 MT, the first in four years, with production estimated to rise +7.8% y/y, suggesting a potential future easing of supply pressures.

Mixed supply signals include a -24% y/y drop in Ivory Coast exports for the new marketing year and a projected -11% y/y fall in Nigeria's 2025/26 production. Conversely, Ghana's cocoa arrivals surged to 50,440 MT in the four weeks ending September 4, significantly higher than last year, adding complexity to the supply outlook.

Key Decisions for Investors

• Monitor global cocoa grindings data and chocolate sales figures for sustained demand weakness, as current indicators suggest significant headwinds.
• Evaluate the implications of the projected 2024/25 cocoa surplus by ICCO, which could signal a shift from the current tight supply environment and impact long-term price trajectories.
• Observe regional supply dynamics, particularly export data from Ivory Coast and Ghana, and production forecasts from Nigeria, as these will be critical in shaping the actual supply-demand balance.