Cocoa Prices Plummet as Global Demand Collapses, Hitting 8-Month Low
Cocoa Prices Plummet to 8-Month Low Amid Weakening Global Demand
The global cocoa market has been experiencing a significant downturn, with prices plummeting to an eight-month low due to weakening demand and supply chain disruptions. On Thursday, September ICE New York cocoa (CCU25) closed down -330 (-4.32%), while September ICE London cocoa #7 (CAU25) dropped by -258 (-5.10%). This sharp decline has left many market participants reeling, as the global cocoa industry struggles to come to terms with a significant drop in demand.
The European Cocoa Association reported that second-quarter (Q2) European cocoa grindings fell by -7.2% year-over-year (y/y) to 331,762 metric tons (MT), exceeding expectations of a -5% y/y decline. This reduction in demand is largely attributed to the ongoing global economic downturn, which has led to reduced consumption and a decrease in production levels. The European Cocoa Association’s report highlights the growing concern over the health of the global cocoa market, as the industry faces increased pressure from a range of factors.
In Asia, the situation is equally dire, with Q2 Asian cocoa grindings dropping by -16.3% y/y to 176,644 MT, marking the smallest amount for a second quarter in eight years. This significant decline underscores the growing weakness in global cocoa demand and serves as a stark reminder of the challenges facing the industry.
Favorable Weather Conditions Weigh on Prices
In addition to weakening demand, favorable weather conditions in major cocoa-producing countries have also contributed to the recent price drop. The Ivory Coast and Ghana, which account for over 70% of global cocoa production, have experienced improved weather conditions, leading to increased yields and a boost in supply. However, this positive development has had an unexpected effect on prices, as it has put pressure on the market.
The situation is different in Nigeria and Cameroon, where unfavorable weather conditions have resulted in reduced crop yields, adding to the uncertainty surrounding global cocoa production levels. This variability in weather patterns highlights the inherent challenges faced by the industry, particularly with regard to supply chain management and forecasting.
Chocolate Maker Barry Callebaut Reduces Sales Volume Guidance
One of the key drivers behind the recent price decline is the revised sales volume guidance provided by chocolate maker Barry Callebaut AG. Last Thursday, the company reduced its sales volume forecast for a second time in three months, citing persistently high cocoa prices as a major concern. This downward revision underscores the ongoing struggle faced by the industry, particularly with regard to maintaining profitability and competitiveness.
Barry Callebaut’s decision to reduce its sales volume guidance has sent shockwaves through the market, as it indicates a significant decline in demand for chocolate products. The company projects a decrease in full-year sales volume, marking one of the largest quarterly drops in a decade. This development serves as a clear warning sign for the industry, highlighting the need for producers and suppliers to adapt quickly to changing market conditions.
Bearish Factors Weigh on Cocoa Prices
In addition to weakening demand and favorable weather conditions, several other factors are contributing to the recent price decline. The ICE-monitored cocoa inventories held in US ports have reached a 10-month high of 2,363,861 bags as of June 18, providing bearish support for prices. This accumulation of inventory highlights the ongoing imbalance between supply and demand, placing downward pressure on prices.
Furthermore, higher production levels by Ghana are also exerting downward pressure on cocoa prices. On July 1, the Ghana Cocoa Board projected an increase in the 2025/26 Ghana cocoa crop by +8.3% y/y to 650,000 MT from 600,000 MT in 2024/25. This significant rise in production is expected to put further downward pressure on global cocoa prices.
Quality Concerns for Ivory Coast’s Mid-Crop Cocoa
Despite the challenging market conditions, there are indications that quality concerns may be supporting prices. The Ivory Coast’s mid-crop cocoa is currently being harvested through September, with processors complaining about the poor quality of the crop. This rejection rate of 5% to 6% per truckload is significantly higher than the average rejection rate of 1% during the main crop.
The poor quality of the Ivory Coast’s mid-crop has been attributed to late-arriving rain in the region, which limited crop growth. According to Rabobank, this adverse weather condition has contributed to a decline in yields and an increase in the proportion of low-quality cocoa beans. The average estimate for this year’s Ivory Coast mid-crop is 400,000 MT, down -9% from last year’s 440,000 MT.
Global Cocoa Deficit Widens
The International Cocoa Organization (ICCO) has revised its 2023/24 global cocoa deficit to -494,000 MT from a February estimate of -441,000 MT. This significant increase in the deficit underscores the ongoing struggle faced by the industry, particularly with regard to maintaining supply and meeting demand.
The ICCO’s report highlights the challenges facing the global cocoa market, including reduced production levels and increased consumption. The organization forecasts a global cocoa surplus of 142,000 MT for 2024/25, marking the first surplus in four years. This projected increase in supply is expected to provide support for prices, although it remains uncertain whether the industry can meet demand.
Conclusion
The recent price decline in the global cocoa market has left many market participants reeling. Weakening demand, favorable weather conditions, and reduced production levels have all contributed to the downward pressure on prices. While quality concerns may be supporting prices, the overall outlook for the industry remains uncertain.
As the global cocoa market continues to grapple with challenges, it is essential for producers, suppliers, and consumers to adapt quickly to changing market conditions. The recent price decline serves as a stark reminder of the need for the industry to prioritize supply chain management, forecasting, and innovation in order to maintain profitability and competitiveness.
In conclusion, the global cocoa market faces significant headwinds, including weakening demand, favorable weather conditions, reduced production levels, and quality concerns. As the industry navigates these challenges, it is crucial to recognize the need for adaptability, resilience, and innovative solutions to ensure a sustainable future for the cocoa sector.
