Cocoa Prices Surge Amid Supply Concerns
On Wednesday, cocoa prices saw a significant rise, with March ICE NY Cocoa (CCH26) up by 339 points (+5.76%) and March ICE London Cocoa #7 (CAH26) increasing by 239 points (+5.62%). This increase marks a one-month high for cocoa prices.
Over the past fortnight, prices have climbed due to tightening global supply conditions. The International Cocoa Organization (ICCO) revised its forecast for the 2024/25 global cocoa surplus down to 49,000 tonnes from 142,000 tonnes, and also cut its production estimate to 4.69 million metric tonnes (MMT) from 4.84 MMT. Rabobank echoed this sentiment, adjusting its surplus forecast for 2025/26 to 250,000 tonnes from a previous estimate of 328,000 tonnes.
Moreover, declining stocks monitored by ICE are also contributing to higher cocoa prices. Cocoa inventories at U.S. ports decreased to 1,664,563 bags, the lowest level in 8.75 months.
Interestingly, reduced volumes arriving at Ivorian ports are also playing a role. As of December 7, Ivorian farmers had dispatched 804,288 tonnes of cocoa this marketing year, which is a 1.8% drop from last year’s 819,425 tonnes during the same timeframe. This decline is noteworthy considering Ivory Coast is the world’s top cocoa producer.
Adding to the bullish sentiment are planned inclusions of New York cocoa futures in the Bloomberg Commodity Index (BCOM) starting January. This move could entice passive commodity funds to buy upwards of $2 billion in New York cocoa futures during the early weeks of January, as suggested by Citigroup.
However, there are opposing factors in West Africa, where generally good weather conditions are likely to enhance yields and bolster supply. Farmers in Ivory Coast are reporting that a mix of rain and sunshine is aiding the flowering process of cocoa trees. Meanwhile, Ghanaian farmers noted that regular rainfall is beneficial for cocoa development as they approach the harmattan season.
Expectations of a plentiful global cocoa supply seem to be overshadowing rising prices. On November 19, prices hit their lowest in 1.75 years, driven by optimism about a robust cocoa crop in West Africa. Reports indicate that Ivorian cocoa trees are thriving, and favorable dry weather is aiding the drying of beans. Ghanaian farmers have expressed that their cocoa beans are developing more quickly due to the ideal weather.
Recently, chocolate maker Mondelez highlighted that West Africa’s latest cocoa crop is projected to be 7% above the five-year average and significantly exceeds last year’s harvest. Ivory Coast’s main crop harvest has just started, and farmers are feeling hopeful about the quality.
In a related development, on November 26, the European Parliament approved a year-long extension of deforestation regulations, which softened cocoa prices and ensured ample supply. This EU policy aims to address deforestation in countries exporting key commodities like cocoa. The postponement will allow EU nations to continue importing agricultural products from regions experiencing deforestation in Africa, Indonesia, and South America.
Earlier, on November 14, cocoa prices dropped following an announcement from the Trump administration to remove a 10% reciprocal tariff on non-U.S. goods, including cocoa, as well as a 40% tariff on food imports from Brazil, one of the leading cocoa-producing nations.
The downward pressure on prices is further exacerbated by weak global demand for cocoa. During a recent earnings call, the CEO of Hershey noted that chocolate sales had been disappointing during the Halloween season, a crucial time which typically contributes nearly 18% to annual U.S. candy sales, just behind Christmas. Furthermore, the Asia Cocoa Association reported a 17% year-over-year decrease in cacao crushing volume in the third quarter, while the European Cocoa Association indicated a decline of 4.8% in European cocoa crushing during the same period, marking the lowest for a third quarter in a decade. Interestingly, while North American cocoa milling volume grew by 3.2% year-over-year to 112,784 tons in the third quarter, this figure was distorted by the entry of new reporting companies. In a concerning trend, North American chocolate candy sales plunged over 21% in the 13 weeks ending September 7 compared to the previous year’s figures.
Another factor contributing to the cocoa market’s dynamics is a reduction in cocoa production in Nigeria, which ranks fifth in global cocoa production. The Cocoa Association of Nigeria projects production for 2025/26 at 305,000 tonnes, down 11% from the anticipated 344,000 tonnes for the 2024/25 season. September cocoa exports from Nigeria remained unchanged year-on-year at 14,511 tonnes.
To sum up, the ICCO put the global cocoa deficit for 2023/24 at an astonishing -494,000 tonnes, marking the largest deficit seen in over 60 years. The organization revealed that cocoa production has plummeted by 12.9% compared to the previous year, totaling 4.368 MMT. Additionally, the global cocoa stock-to-crushed ratio revised down to 27.0% is now the lowest recorded in 46 years, with projections for a surplus in 2024/25 anticipated at 49,000 tonnes, the first surplus in four years. The ICCO is predicting an increase in global cocoa production by 7.4% for 2024/25, reaching 4.69 MMT.
