Cocoa Prices Fall on the Outlook for Higher Cocoa Output in Ghana

Cocoa prices extended their selloff, with NY and London futures hitting multi-week lows, primarily driven by the Ghana Cocoa Board's projection of an 8.3% increase in its 2025/26 crop and a significant rebound in ICE-monitored inventories. Bearish sentiment is further exacerbated by weakening consumer demand, as major chocolate makers report sales declines due to high prices and tariffs, alongside a notable drop in Q1 global cocoa grindings. However, underlying price support persists from concerns over tight current supplies from Ivory Coast, including quality issues with its mid-crop and harvest disruptions, coupled with Nigeria's declining exports and the ICCO's revised 60-year high global deficit for 2023/24, despite the ICCO forecasting a surplus for 2024/25.

Analysis

Cocoa futures are experiencing a significant selloff, driven by a confluence of bearish forward-looking supply signals and tangible evidence of demand destruction. The primary catalyst for the recent price decline is the Ghana Cocoa Board's projection of an 8.3% year-over-year increase in its 2025/26 crop to 650,000 MT, which eases long-term supply concerns. This sentiment is reinforced by a notable rebound in ICE-monitored inventories, which have climbed to a 9-3/4 month high, signaling a near-term easing of supply tightness in US ports. On the demand side, weakness is pronounced, with major confectioners like Hershey Co. (HSY) reporting a 14% Q1 sales decline and Mondelez International (MDLZ) posting weaker-than-expected sales, both citing consumer pullback due to high prices. This is corroborated by contracting Q1 cocoa grindings in North America (-2.5%), Europe (-3.7%), and Asia (-3.4%). However, these bearish factors are juxtaposed with severe current-year supply constraints. The International Cocoa Organization (ICCO) has widened its 2023/24 global deficit forecast to a 60-year high of -494,000 MT, with the stocks-to-grindings ratio at a 46-year low. Supporting this tightness are reports of heavy rain disrupting the Ivory Coast's mid-crop harvest, a significant -29% y/y drop in Nigerian May exports, and widespread quality issues with Ivory Coast beans, which effectively reduces usable supply. The market is thus caught between a historically tight spot market and expectations of a future supply recovery, as evidenced by the ICCO's forecast for a 142,000 MT surplus in 2024/25.

Key Decisions for Investors

• Expect continued high volatility in cocoa futures as the market attempts to price a historically tight 2023/24 supply against forecasts for a 2024/25 surplus and clear signs of demand destruction.
• Investors in consumer staples should closely monitor the upcoming earnings of Hershey (HSY) and Mondelez (MDLZ) for continued margin compression and volume declines, as high cocoa costs and tariff impacts are directly eroding profitability and sales.
• Key indicators to watch are the next quarterly grindings data, which will be critical for confirming the extent of demand weakness, and official production forecasts from Ivory Coast, which will either support or contradict Ghana's optimistic outlook for future supply.