Quick Summary
- Cocoa futures experienced a significant decline, reaching 1.75-year lows due to expectations of tariff cuts on imported crops like cocoa and a projected bumper crop in West Africa.
- Global cocoa demand appears weak, evidenced by disappointing Halloween sales and significant year-over-year drops in cocoa grindings in Asia and Europe during Q3.
- Factors providing some support to cocoa prices include reduced export volumes from Ivory Coast, the potential for significant inflows from passive funds tracking the Bloomberg Commodity Index, declining ICE cocoa inventories, and lower production forecasts for Nigeria.
- The International Cocoa Organization (ICCO) previously reported a record global cocoa deficit for 2023/24, but forecasts a surplus for 2024/25, indicating a shift in market dynamics.
Cocoa Prices Under Pressure
December ICE NY cocoa futures (CCZ25) closed down -200 (-3.64%) on Friday, while December ICE London cocoa #7 futures (CAZ25) finished lower by -37 (-0.90%). This marked an extension of the week’s sell-off, pushing nearest-futures charts to 1.75-year lows.
Market sentiment was influenced by expectations of potential tariff reductions on crops not grown domestically, including cocoa. U.S. Treasury Secretary Bessent indicated that substantial announcements regarding tariffs were forthcoming, creating downward pressure on cocoa prices.
West African Harvest Outlook
Cocoa prices have retreated from 6-week highs reached last Tuesday, largely driven by anticipation of a robust cocoa crop in West Africa. Reports from Ivory Coast suggest cocoa trees are thriving, with recent dry weather aiding the drying process of harvested beans. Similarly, Ghanaian farmers are experiencing favorable weather conditions that are accelerating the development of cocoa pods.
Chocolate manufacturer Mondelez reported that the current cocoa pod count in West Africa stands 7% above the five-year average and is materially higher than the previous year’s harvest. The main crop harvest in Ivory Coast has commenced, with farmers expressing optimism regarding its quality.
Global Demand Weakness
The global demand for cocoa remains a bearish factor for prices. The CEO of Hershey noted disappointing chocolate sales during the recent Halloween season, a period that typically accounts for nearly 18% of annual U.S. candy sales.
Further evidence of demand sluggishness comes from cocoa grinding data. The Cocoa Association of Asia reported a -17% year-over-year drop in Q3 grindings, reaching an 9-year low for the quarter. In Europe, Q3 grindings fell by -4.8% year-over-year, marking a 10-year low for the third quarter. While North American Q3 grindings saw a slight increase of +3.2%, this was attributed to the inclusion of new reporting companies, and overall North American chocolate candy sales volume declined by over -21% in the 13 weeks ending September 7, according to Circana.
Supportive Factors Emerge
Despite prevailing bearish sentiment, certain factors are providing support to cocoa prices.
📍 Signs of a slowdown in cocoa exports from Ivory Coast, the world’s leading cocoa producer, are a positive indication. Data from October 1 through November 8 shows shipments to ports at 411,979 MT, a -9% decrease compared to the same period last year.
⚡ A notable catalyst for a previous rally to 6-week highs was the news that cocoa would be included in the Bloomberg Commodity Index (BCOM) for the first time in two decades, starting in January. With assets tracking the BCOM index nearing $109 billion, cocoa’s estimated 1.7% weighting could drive substantial inflows from passive funds, potentially requiring significant cocoa futures purchases.
📊 ICE-monitored cocoa inventories in U.S. ports have fallen to a 7.75-month low, standing at 1,766,644 bags as of Friday, offering support to prices.
✅ Lower cocoa production projections from Nigeria, the fifth-largest global producer, also contribute to price support. The Nigerian Cocoa Association forecasts a -11% year-over-year decrease in 2025/26 production, falling to 305,000 MT from the projected 344,000 MT for the 2024/25 crop year.
Global Deficit and Projected Surplus
The International Cocoa Organization (ICCO) had previously revised its 2023/24 global cocoa deficit to -494,000 MT, the largest in over six decades. This was accompanied by a -13.1% year-over-year decline in global cocoa production to 4.380 MMT, pushing the global cocoa stocks-to-grindings ratio to a 46-year low of 27.0%.
However, the ICCO now estimates a global cocoa surplus of 142,000 MT for 2024/25, which would mark the first surplus in four years. This projection is based on an anticipated +7.8% year-over-year increase in global cocoa production to 4.84 MMT.
Expert Summary
Current cocoa market dynamics reflect a complex interplay of factors. While expectations of tariff cuts and a strong West African harvest are pressuring prices, evidence of weakening global demand persists. Conversely, reduced export volumes, potential fund inflows, declining inventories, and lower production in Nigeria offer some countervailing support.
