Cocoa Prices Fade on Stronger Dollar

July ICE NY cocoa (CCN25) on Friday closed down -90 (-0.91%), and July ICE London cocoa #7 (CAN25) closed down -169 (-2.56%).

Cocoa prices fell due to the stronger dollar and recent forecasts for beneficial rainfall in Western Africa.  There was also some concern about reduced global commodity demand if there is a drawn-out war between Israel and Iran.

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Signs of smaller cocoa exports are supportive of cocoa prices, following Wednesday’s news of a -11% y/y decline in Nigerian April cocoa exports to 18,561 MT.  Nigeria is the world’s fourth-largest cocoa exporter.

The rebound in current cocoa inventories is also bearish for prices.  Since falling to a 21-year low of 1,263,493 bags on January 24, ICE-monitored cocoa inventories held in US ports have rebounded and climbed to a 9-month high of 2,275,693 bags Friday.  

Cocoa prices have underlying support from the slowing pace of cocoa exports from the Ivory Coast, signaling tighter future cocoa supplies.  Tuesday’s government data showed that Ivory Coast farmers shipped 1.64 MMT of cocoa to ports this marketing year from October 1 to June 8, up +7.2% from last year but down from the much larger +35% increase seen in December.

Late last month, NY cocoa rallied to a 4-month nearest-futures high on concerns about weather in West Africa.  Despite the recent rain in West Africa, drought still covers more than a third of Ghana and the Ivory Coast, according to the African Flood and Drought Monitor.

Cocoa prices also have support on quality concerns regarding the Ivory Coast cocoa mid-crop, which is currently being harvested through September.  Cocoa processors are complaining about the crop’s quality and have rejected truckloads of Ivory Coast cocoa beans.  Processors reported that about 5% to 6% of the mid-crop cocoa in each truckload is of poor quality, compared with 1% during the main crop.  According to Rabobank, the poor quality of the Ivory Coast’s mid-crop is partly attributed to late-arriving rain in the region, which limited crop growth.  The mid-crop is the smaller of two annual cocoa harvests, which typically starts in April.  The average estimate for this year’s Ivory Coast mid-crop is 400,000 MT, down -9% from last year’s 440,000 MT.

Concern about consumer demand for cocoa and cocoa products is bearish for cocoa, driven by fears that tariffs will exacerbate already high cocoa prices.  On April 10, Barry Callebaut AG, one of the world’s largest chocolate makers, reduced its annual sales guidance due to high cocoa prices and tariff uncertainty.  Also, chocolate maker Hershey Co. recently reported that Q1 sales fell by 14% and said it anticipated $15-$20 million in tariff costs in Q2, which will boost chocolate prices and further weigh on consumer demand.  Mondelez International reported weaker-than-expected Q1 sales, stating that consumers are cutting back on snack purchases due to economic uncertainty and high chocolate prices.  

Weaker demand from cocoa processors was seen in Q1.  Q1 North American cocoa grindings fell -2.5% y/y to 110,278 MT.  Q1 European cocoa grindings fell -3.7% y/y to 353,522 MT.  Q1 Asian cocoa grinding fell -3.4% y/y to 213,898 MT.

On May 30, The International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit to -494,000 MT from a February estimate of -441,000 MT, the largest deficit in over 60 years.  ICCO said 2023/24 cocoa production fell -13.1% y/y to 4.380 MMT.  ICCO said the 2023/24 global cocoa stocks/grindings ratio was 27.0%, a 46-year low.  Looking ahead to 2024/25, ICCO on February 28 forecasted a global cocoa surplus of 142,000 MT for 2024/25, the first surplus in 4 years.  ICCO also projected that 2024/25 global cocoa production will rise +7.8% y/y to 4.84 MMT. 

On the date of publication,

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