Cocoa Prices Soar as President Trump's Tariffs Remain

Cocoa prices surged Friday, with NY cocoa closing up 7.48% and London cocoa up 5.48%, driven by fund short-covering after a temporary reprieve for President Trump's tariff agenda, which will keep US cocoa bean prices elevated. Despite favorable weather in West Africa and rebounding cocoa inventories, concerns persist regarding the quality of the Ivory Coast mid-crop, with processors rejecting shipments due to poor quality, and smaller cocoa supplies from Ghana. Market participants are weighing concerns about consumer demand amid high prices and tariff uncertainty against better-than-expected global cocoa demand figures.

Analysis

Cocoa prices surged significantly on Friday, with July ICE NY cocoa closing up 7.48% and London cocoa up 5.48%, largely due to fund short-covering after a US federal appeals court granted a temporary reprieve concerning a tariff agenda, implying sustained higher cocoa bean costs in the US. This rally followed a period of price declines, with NY cocoa reaching a 2.5-week low and London cocoa a 3-week low, pressured by favorable West African weather and ICE-monitored US port inventories climbing to an 8.25-month high of 2,201,950 bags. The market is navigating conflicting signals: the International Cocoa Organization (ICCO) reported a historic 2023/24 global deficit of 441,000 MT and a 46-year low stocks-to-grindings ratio of 27.0%, yet forecasts a 142,000 MT surplus for 2024/25. Persistent supply concerns include slowing Ivory Coast export growth (up 9.6% YTD vs. 35% in December), Ghana's reduced 2024/25 harvest forecast to 617,500 MT, and significant quality issues with the Ivory Coast's mid-crop, with 5-6% poor quality beans reported by processors. Conversely, consumer demand is strained by high prices and tariff uncertainties, as indicated by Hershey's (HSY) 14% Q1 sales drop and Mondelez's (MDLZ) weaker Q1 sales, although Q1 global cocoa grindings declined less than feared across North America (-2.5% y/y), Europe (-3.7% y/y), and Asia (-3.4% y/y).

Key Decisions for Investors

• Investors should brace for continued volatility, closely monitoring West African crop developments, Ivory Coast mid-crop quality reports, and export data as key near-term price influences.
• Scrutinize upcoming earnings from chocolate manufacturers like Hershey (HSY) and Mondelez (MDLZ) for insights into consumer demand elasticity amid sustained high cocoa prices and the actualized impact of tariffs.
• The US tariff situation remains a critical wildcard, while the ICCO's projection of a shift from a significant deficit in 2023/24 to a surplus in 2024/25 warrants careful consideration for longer-term market positioning.