Cocoa Market Summary
- Cocoa prices saw a dip on Thursday, influenced by a strengthening dollar and pound.
- Favorable West African weather conditions are contributing to expectations of improved yields and supplies.
- Previous support came from the ICCO’s revised 2024/25 global cocoa surplus and production estimates.
- Shrinking ICE cocoa inventories offered some bullish sentiment to the market.
- Weakening global cocoa demand, particularly in Asia and Europe, continues to pressure prices.
- Nigeria’s projected decrease in cocoa production for upcoming seasons presents a potential bullish factor.
Cocoa Prices React to Currency Movements and Weather
On Thursday, March ICE NY cocoa futures (CCH26) closed down 0.33%, while March ICE London cocoa futures (CAH26) experienced a larger decline, settling 1.22% lower. These downward movements were partly attributed to currency fluctuations. A rebound in the U.S. dollar index, which recovered from a five-week low, weighed on New York cocoa prices. Similarly, London cocoa faced pressure as the British pound climbed to a five-week high, making cocoa priced in sterling more expensive and less attractive.
Market sentiment is currently being shaped by contrasting factors. While currency movements created headwinds, the overall outlook for cocoa supplies remains a significant focus for traders and analysts monitoring the commodity. The interplay between macroeconomic factors and agricultural fundamentals continues to dictate price action in the cocoa market.
💡 Understanding currency impact is key in commodity trading. When the dollar strengthens, commodities priced in dollars become more expensive for foreign buyers, potentially dampening demand and lowering prices. Conversely, a weaker dollar can make these commodities more affordable globally.
West African Weather Outlook and Supply Expectations
Cocoa prices are facing downward pressure due to generally favorable weather conditions across West Africa. Local reports indicate that a balanced mix of rain and sunshine in the Ivory Coast is promoting healthy cocoa tree blooming, suggesting potential for good yields. In Ghana, consistent rainfall has been beneficial for cocoa tree development and pod maturation, particularly ahead of the approaching harmattan season.
These improved growing conditions are bolstering expectations of increased cocoa supplies in the upcoming harvest. This outlook contrasts with earlier concerns about shortages, as farmers express optimism about the quality and quantity of the developing cocoa crop. The continuous updates from key producing regions are closely watched by market participants.
Previous Support from ICCO Estimates and Crop Arrivals
Earlier in the week, cocoa prices found some support, reaching two-week highs. This was driven by a revision in global cocoa balance sheets by the International Cocoa Organization (ICCO). The ICCO lowered its estimated global cocoa surplus for the 2024/25 season to 49,000 metric tons (MT) from a prior estimate of 142,000 MT.
Additionally, the ICCO reduced its global cocoa production forecast for 2024/25 to 4.69 million metric tons (MMT), down from 4.84 MMT. This recalibration of supply expectations provided a temporary lift to cocoa prices, signaling a tighter potential market than previously anticipated by some analysts.
Further bolstering prices was the data on reduced cocoa arrivals at ports in the Ivory Coast, the world’s largest cocoa producer. For the new marketing year, from October 1 to November 30, Ivory Coast farmers shipped 718,451 MT of cocoa to ports. This figure represents a slight decrease of 2.1% compared to the 734,026 MT recorded during the same period in the previous year, indicating a potential slowdown in immediate export volumes.
Impact of Inventories and Previous Price Declines
Shrinking inventories held in ICE-monitored warehouses also played a role in supporting cocoa prices. On Thursday, cocoa stocks held in U.S. ports fell to 1,682,716 bags, marking an 8.5-month low. Declining stockpiles can signal tighter immediate availability, which is typically seen as a bullish indicator for futures markets.
Despite these supportive elements, the broader outlook for ample global cocoa supplies has been a persistent drag on prices. Earlier in November, cocoa prices had plunged to 1.75-year lows. This significant drop was fueled by expectations of a bumper cocoa crop in West Africa, with reports from farmers in the Ivory Coast and Ghana pointing to favorable weather aiding cocoa tree health and pod development.
✅ Comparing current inventory levels to historical data (like the 8.5-month low) helps assess market tightness. Lower inventories usually suggest stronger demand relative to supply, which can support prices, assuming demand doesn’t collapse.
Mondelez Outlook and EU Deforestation Law Delay
Recent insights from major chocolate manufacturer Mondelez offered further details on crop prospects. The company indicated that the latest cocoa pod count in West Africa is approximately 7% above the five-year average and materially higher than the previous year’s harvest. With the main crop harvest in the Ivory Coast underway, farmers are expressing optimism about its quality.
The European Parliament’s approval of a one-year delay for the deforestation law (EUDR) also removed a potential supply constraint. This regulation aims to curb deforestation linked to imports of commodities like cocoa. The delay allows for continued agricultural imports from regions susceptible to deforestation, ensuring that unforeseen supply disruptions due to the regulation are postponed, thereby keeping potential supplies ample.
Additionally, shifts in trade policy provided market headwinds. In mid-November, the U.S. administration announced the removal of 10% reciprocal tariffs on commodities not grown domestically, including cocoa, and a 40% tariff on food imports from Brazil. Brazil is a significant cocoa-producing nation, and these tariff changes could influence global trade flows and pricing dynamics.
Global Demand Weakness and Regional Grinding Data
Weakening global cocoa demand continues to exert bearish pressure on prices. The CEO of chocolate maker Hershey reported disappointing chocolate sales during the recent Halloween season, a period typically significant for the U.S. candy market that accounts for nearly 18% of annual sales. This suggests potential consumer spending constraints or shifts in purchasing habits.
Further evidence of sluggish demand comes from regional cocoa grinding data. In Asia, Q3 cocoa grindings fell by 17% year-on-year to 183,413 MT, marking the lowest third-quarter grind in nine years. European cocoa grindings also declined in Q3, dropping 4.8% year-on-year to 337,353 MT, the lowest third-quarter figure in a decade. While North American Q3 grindings showed a slight increase of 3.2% year-on-year, this rise was reportedly influenced by the addition of new reporting companies, potentiallyskewing the underlying trend.
📊 Analyzing regional cocoa grinding data is crucial. It provides a proxy for actual chocolate production and consumption trends, offering insights into demand at the manufacturing level. Declining grindings typically signal weaker demand for cocoa beans.
Nigerian Production Outlook and Historical Deficits
A potentially supportive factor for cocoa prices arises from the projected lower cocoa production in Nigeria, the world’s fifth-largest producer. The Nigeria Cocoa Association forecasts a year-on-year decrease in their 2025/26 cocoa production, estimating it to fall by 11% to 305,000 MT from the projected 344,000 MT for the 2024/25 crop year. This anticipated reduction in supply from a key producer could offer some floor to prices.
Historically, the cocoa market has experienced significant deficits. The ICCO revised its 2023/24 global cocoa deficit to a substantial 494,000 MT, the largest in over 60 years. During that period, cocoa production had fallen by 12.9% year-on-year to 4.368 MMT, and the global stocks-to-grindings ratio declined to a 46-year low of 27.0%. This highlights the volatility and cyclical nature of cocoa supply and demand dynamics.
Frequently Asked Questions about Cocoa Prices
Why did cocoa prices drop on Thursday?
Cocoa prices saw a decline on Thursday primarily due to a rebound in the U.S. dollar and a strengthening British pound. These currency movements made cocoa more expensive for buyers using other currencies, leading to some selling pressure.
What impact does weather have on cocoa prices?
Weather significantly impacts cocoa prices because it directly affects crop yields and supply. Favorable weather in key producing regions like West Africa can lead to expectations of larger harvests, which tends to put downward pressure on prices. Conversely, adverse weather conditions can reduce supply and support higher prices.
Is global cocoa demand increasing or decreasing?
Current data suggests that global cocoa demand is weakening. Recent reports show declines in cocoa grinding activity in major consuming regions like Asia and Europe, indicating lower demand from chocolate manufacturers. U.S. seasonal sales data also pointed to disappointing performance.
How do inventory levels affect cocoa prices?
Shrinking cocoa inventories, such as the recent drop in ICE-monitored stocks to an 8.5-month low, can be a supportive factor for prices. Lower available stocks suggest tighter immediate supply, which can encourage buying and potentially lead to price increases, assuming underlying demand remains consistent.
What is the ICCO’s outlook for the 2024/25 cocoa season?
The International Cocoa Organization (ICCO) has estimated a global cocoa surplus of 49,000 MT for the 2024/25 season. This marks a shift from recent deficit years and indicates an expected increase in global cocoa production, which could influence market dynamics.
Cocoa Market Outlook and Key Considerations
The cocoa market is currently navigating a complex landscape, with competing forces influencing price direction. While recent supportive factors like lower previous deficits and reduced arrivals provided a floor, the prevailing sentiment is leaning towards bearishness due to ample supply expectations stemming from favorable West African weather and robust crop forecasts. The ongoing weakness in global demand, particularly from key consuming regions, remains a significant headwind.
Moving forward, traders will closely monitor several key indicators. Crop development reports from the Ivory Coast and Ghana will be crucial for refining supply estimates. Changes in currency valuations, especially the U.S. dollar’s trajectory, will continue to impact international cocoa pricing. Furthermore, any shifts in global economic conditions that could affect consumer spending on chocolate products will heavily influence demand-side considerations.
