Cocoa Prices Plummet on Fears of Record-Low Demand

Cocoa Prices Tumble as Demand Concerns Weigh Heavily

The global cocoa market has been experiencing a significant downturn, with prices plummeting due to concerns over demand and production levels. The latest data from the Intercontinental Exchange (ICE) shows that September ICE New York cocoa (CCU25) is down by 266 points (-3.37%), while September ICE London cocoa #7 (CAU25) has dropped by 146 points (-2.80%). This decline in prices can be attributed to several factors, including the expected release of Q2 grinding figures on Thursday.

The consensus among market analysts suggests that Q2 European grindings will fall by 5% year-over-year (y/y), which would follow Tuesday’s negative demand news from the Malaysian Cocoa Board and Cocoa Manufacturers Group. The data revealed that Malaysian cocoa bean processing in Q2 fell by a staggering 22% y/y, adding to the concerns over global demand.

The Q1 grindings reports for various regions have also been underwhelming. In North America, cocoa grindings dropped by 2.5% y/y to 110,278 metric tons (MT), while European cocoa grindings declined by 3.7% y/y to 353,522 MT. The Asian region also saw a decline of 3.4% y/y in cocoa grindings, with a total of 213,898 MT.

In addition to the Q1 data, reports have emerged that favorable weather conditions in cocoa-growing areas in the Ivory Coast and Ghana are contributing to lower prices. Although these countries are major producers of cocoa, the weather is less favorable in Nigeria and Cameroon, which could lead to a supply crunch in the future.

The latest government data from the Ivory Coast has revealed that farmers shipped 1.73 million metric tons (MMT) of cocoa to ports between October 1 and July 13, marking a 6.8% increase from last year. However, this growth is slower than the significant increases seen earlier in the marketing year.

Chocolate maker Barry Callebaut AG has also reduced its sales volume guidance for the second time in three months, citing persistently high cocoa prices as the reason. The company projects a decline in full-year sales volume and reported a 9.5% drop in its March-May sales volume, the largest quarterly decline in a decade.

Higher production levels by Ghana are another bearish factor for cocoa prices. On July 1, the Ghana Cocoa Board projected that the 2025/26 Ghana cocoa crop would increase by 8.3% y/y to 650,000 MT from last year’s 600,000 MT. As the world’s second-largest cocoa producer, this development could lead to a global supply surplus.

In the United States, ICE-monitored cocoa inventories held in ports climbed to a 10-month high of 2,363,861 bags on June 18 and remained modestly below that level at 2,336,040 bags as of Tuesday. This surge in inventory levels could put downward pressure on prices.

However, some market participants are finding support from quality concerns regarding the Ivory Coast’s mid-crop cocoa, which is currently being harvested through September. Cocoa processors have complained about the poor quality of this crop and rejected truckloads of Ivory Coast cocoa beans. Processors reported that around 5-6% of each truckload is of poor quality, compared with just 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 average estimate for this year’s Ivory Coast mid-crop is 400,000 MT, down 9% from last year’s 440,000 MT.

The International Cocoa Organization (ICCO) has also revised its 2023/24 global cocoa deficit to -494,000 MT from a February estimate of -441,000 MT. The ICCO stated that 2023/24 cocoa production fell by 13.1% y/y to 4.380 MMT, while the global cocoa stocks/grindings ratio dropped to a 46-year low of 27.0%. Looking ahead to 2024/25, the ICCO projected a global cocoa surplus of 142,000 MT for 2024/25, the first surplus in four years.

The forecast for 2024/25 global cocoa production is expected to rise by 7.8% y/y to 4.84 MMT. This increase could lead to an oversupply situation in the market, which would further weigh on prices.

Conclusion

In conclusion, the decline in cocoa prices can be attributed to a combination of factors, including demand concerns and production levels. The expected release of Q2 grinding figures will likely have a significant impact on market sentiment. As the global cocoa market continues to navigate these challenges, it is essential for investors and market participants to closely monitor developments and adjust their strategies accordingly.

While there are some bearish factors at play, quality concerns regarding the Ivory Coast’s mid-crop cocoa could provide some support for prices. However, a sustained decline in demand and production levels would likely put downward pressure on prices.

As always, it is crucial for market participants to stay informed about global events and trends that may impact cocoa prices. With the ICCO’s revised deficit estimate and forecast of a global surplus for 2024/25, investors should be prepared for potential price fluctuations in the coming months.