Cocoa Market Update
On Wednesday, December ICE NY Cocoa (CCZ25) concluded at -204, marking a decline of 3.50%, while December ICE London Cocoa #7 (CAZ25) saw a slight increase of +17, or 0.41%.
Cocoa prices displayed mixed trends before stabilizing, with New York cocoa plummeting to its lowest point in 1.75 years for recent futures. The possibility of upcoming tariff reductions weighed heavily on prices after U.S. Treasury Secretary Bessent indicated that “substantive announcements” regarding tariffs on crops like cocoa from outside the U.S. were imminent.
After reaching a six-week high last Tuesday, cocoa prices have been on a downward trend. Farmers in the Ivory Coast reported that their cocoa trees were thriving, thanks to dry weather conditions which facilitate drying, while counterparts in Ghana noted favorable weather contributing to faster development of their cocoa beans.
Chocolate producer Mondelez mentioned recently that the latest crop from West Africa exceeds the five-year average by 7% and is “significantly higher” than last year’s figures. Harvesting in the Ivory Coast is just starting, and farmers are feeling positive about the crop’s quality.
However, there’s some bearish sentiment due to weak global demand. Hershey’s CEO expressed disappointment over chocolate sales this Halloween season, a crucial time given that Halloween represents nearly 18% of annual U.S. candy sales, second only to Christmas. Additionally, the Asia Cocoa Association noted a notable drop in cacao milling volume for the third quarter, with a 17% year-on-year decline, marking the lowest ground volume for this quarter in nine years. Similarly, the European Cocoa Association reported a 4.8% reduction in cocoa crushing volumes during the same period, the lowest third quarter for a decade. While North America’s cocoa milling volume increased slightly by 3.2% year-on-year, it’s worth noting that the inclusion of new reporting companies might have distorted the data. On another note, chocolate sales in North America saw a more than 21% decline over the 13 weeks ending September 7, according to research data.
Meanwhile, a slowdown in cocoa exports from Ivory Coast could support prices. Data shows that 411,979 tonnes were shipped from October 1 to November 8 in this marketing year, a decrease of 9% compared to 454,624 tonnes in the same timeframe last year.
There’s an overload of short positions in London Cocoa, potentially sparking a short-covering rally. Recent reports indicate an increase in net short positions among funds to their highest level in over four years. However, due to the current U.S. government shutdown, recent data on New York Cocoa positions is unavailable.
A short covering occurred last Tuesday, prompted by news that the Bloomberg Commodity Index would include cocoa for the first time in two decades starting in January. This change recently boosted cocoa prices to a six-week high. The index tracks around $109 billion in total assets, indicating that cocoa’s inclusion could lead to significant inflows from passive funds, with estimates suggesting that about $1.9 billion in cocoa futures will need to be purchased over the next 80 days.
Declining ICE cocoa stocks are also bolster cocoa prices. Cocoa stock under ICE scrutiny at U.S. ports decreased to 1,783,757 bags, the lowest amount in 7.5 months.
Furthermore, predictions indicate that cocoa production in Nigeria, the fifth-largest producer globally, will drop to 305,000 tonnes in 2025/26, a reduction of 11% from the anticipated 344,000 tonnes for the current crop year. Nigeria’s cocoa exports in September remained steady at 14,511 tonnes compared to last year.
The International Cocoa Organization recently revised the global cocoa deficit for 2023/24 to 494,000 tonnes, the worst shortage in over 60 years. It noted a 13.1% drop in production compared to last year, falling to 4.38 million metric tonnes. Additionally, the global cocoa stock-to-crushed ratio reached its lowest level in 46 years, at 27%. Looking ahead, the ICCO forecasts a surplus of 142,000 tonnes in 2024/25, the first surplus in four years, with production expected to rise by 7.8% to 4.84 million metric tonnes.
