Dollar Weakness and Slowing Ivory Coast Exports Boost Cocoa Prices

Cocoa prices rebounded today, supported by a weaker dollar and concerns over tightening supplies from the Ivory Coast, where cocoa shipments are up 6.4% YTD but slowing from December's 35% increase. Despite rising ICE-monitored cocoa inventories, quality concerns regarding the Ivory Coast's mid-crop and drought in West Africa persist, while long-term bearish factors include weaker demand due to high prices and potential tariffs, as evidenced by reduced sales guidance from Barry Callebaut and declining sales reported by Hershey and Mondelez. The ICCO forecasts a significant global cocoa deficit for 2023/24, but anticipates a surplus in 2024/25.

Analysis

Cocoa prices experienced a rebound, with July ICE NY cocoa up +2.39% and July ICE London cocoa up +1.68%, primarily driven by a weakening U.S. dollar and growing concerns over future supply tightness. Data from the Ivory Coast indicates that while cumulative cocoa shipments from October 1 to June 15 are up +6.4% year-over-year to 1.66 MMT, this represents a significant deceleration from the +35% increase observed in December, suggesting a potential tightening of available supply. Further supporting supply concerns, Nigerian April cocoa exports fell by -11% y/y. Despite these bullish signals, ICE-monitored cocoa inventories in U.S. ports have climbed to a 9-month high, providing some counter-pressure. Persistent drought conditions in over a third of Ghana and the Ivory Coast, coupled with significant quality issues in the Ivory Coast's mid-crop—processors report 5-6% poor quality beans versus 1% in the main crop, and a projected 9% y/y decline in mid-crop volume to 400,000 MT—underscore ongoing supply risks. Conversely, demand-side headwinds are apparent. Major chocolate manufacturers like Barry Callebaut, Hershey Co. (HSY), and Mondelez International (MDLZ) have reported or guided for weaker sales, attributing this to high cocoa prices and potential tariff impacts. Hershey's Q1 sales fell 14%, and Mondelez noted consumers cutting back. This is corroborated by declining Q1 cocoa grindings in North America (-2.5% y/y), Europe (-3.7% y/y), and Asia (-3.4% y/y). The International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit estimate to -494,000 MT, the largest in over 60 years, with production down -13.1% y/y and the stocks/grindings ratio at a 46-year low of 27.0%. However, the ICCO projects a shift to a 142,000 MT surplus for 2024/25, with global production anticipated to rise +7.8% y/y, signaling a potential easing of supply constraints in the longer term.

Key Decisions for Investors

• Investors should closely monitor the evolving supply situation, particularly West African weather patterns, Ivory Coast mid-crop quality reports, and export data, as these are key near-term price drivers.
• Given the reported demand destruction and negative sales impacts for major confectioners like Hershey and Mondelez, consider the potential for continued pressure on cocoa consumption if prices remain elevated or rise further.
• Factor in the ICCO's forecast for a global cocoa surplus in 2024/25, which could cap long-term price appreciation, against the backdrop of a historically significant deficit in the current 2023/24 season.