Decline in Cocoa Supply Leads to Price Drop in Market

Falling Cocoa Prices and Market Analysis

Cocoa prices took a hit on Monday, with July ICE NY cocoa (CCN25) and May ICE London cocoa #7 (CAK25) recording significant decreases of -4.79% and -3.08%, respectively.

The price drop can be attributed to an increase in global cocoa supplies, as reported by Bloomberg. Nigerian Mar cocoa exports surged by 24% year-over-year, reaching 27,564 MT. Nigeria, the world's fifth-largest cocoa producer, is driving the upward trend in cocoa quantities.

The market's bearish sentiment is also fueled by a rebound in current cocoa inventories. ICE-monitored cocoa inventories have rebounded from a 21-year low of 1,263,493 bags, reaching a 6-1/2 month high of 1,987,423 bags in US ports.

Last Friday, NY cocoa peaked at a 2-1/4 month high as supply concerns intensified due to the slow pace of Ivory Coast cocoa exports. However, official data indicates that farmers in Ivory Coast shipped 1.5 MMT of cocoa to ports during this marketing year, from Oct 1 to Apr 27. While this represents a 12% increase from last year, it's lower compared to the much larger +35% increase observed in December.

Despite the bearish sentiment, cocoa prices are gaining support from better-than-anticipated global cocoa demand figures. Q1 North American cocoa grindings fell by 2.5% year-over-year, while Q1 European and Asian cocoa grindings saw smaller declines than initially expected.

Conversely, the upcoming mid-crop harvest in Ivory Coast remains a concern, as farmers have faced challenges due to late-arriving rains and inadequate cocoa growth. According to Rabobank, the mid-crop, which typically begins this month, is expected to be 9% lower than the previous year, averaging 400,000 MT.

The escalating global trade war and tariffs have added to investors' worries, with concerns that consumer demand for cocoa products may decline as prices continue to rise. This led to a 1-month low for NY cocoa and a 5-month low for London cocoa earlier this month.

The International Cocoa Organization (ICCO) forecasted a global cocoa surplus of 142,000 MT for 2024/25, marking the first surplus in four years. ICCO also predicted that global cocoa production will increase by 7.8% year-over-year to 4.84 MMT in 2024/25. Smaller cocoa supplies from Ghana, the world's second-largest cocoa producer, are also supporting prices.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article.

Enrichment Insights:

The cocoa market is influenced by factors such as production shortages, increased demand, and changing supply chain challenges, as well as geopolitical tensions and trade disputes.
Late arrivals of rains in the Ivory Coast and Ghana, coupled with disease outbreaks, have contributed to the quality and quantity concerns of the upcoming mid-crop, potentially impacting the overall supply.
Better production forecasts from other major cocoa-producing countries, including Ivory Coast, are helping to offset potential losses due to the lower Ivory Coast mid-crop harvest.
The ongoing global trade dispute and tariffs impose uncertainty on the market, potentially leading to disruptions in the global cocoa trade flows.
Some forecasts predict a possible easing of prices by approximately 13% in 2025 as a result of improved weather conditions and increased production. However, persistent weather variability, geopolitical tensions, and supply constraints could sustain elevated price levels.

The escalating global trade war and tariffs may further contribute to the decreasing cocoa prices, as concerns about declining consumer demand for cocoa products arise due to rising prices.
The International Cocoa Organization (ICCO) forecasted a global cocoa surplus of 142,000 MT for 2024/25, potentially outweighing the projected 9% lower mid-crop harvest in the Ivory Coast, averaging 400,000 MT.
The average cocoa inventories in US ports have rebounded to a 6-1/2 month high of 1,987,423 bags, contributing to the bearish sentiment in the cocoa market.