Quick Summary
- Cocoa futures saw modest declines on Wednesday, with March ICE NY cocoa down 0.12% and December ICE London cocoa down 0.27%.
- This dip occurred despite a one-year delay of the EU deforestation law, which initially aimed to curb deforestation linked to key commodities like cocoa.
- Favorable weather conditions in West Africa are contributing to expectations of robust cocoa harvests, putting downward pressure on prices.
- Reports indicate strong cocoa pod counts in regions like Ivory Coast, exceeding historical averages and suggesting ample future supply.
- However, reduced cocoa arrivals at Ivory Coast ports and shrinking global inventories offer some support to market prices.
- Global demand for cocoa appears weak, with disappointing seasonal sales and declining cocoa grindings reported in Asia and Europe.
Cocoa Market Overview and Influencing Factors
Cocoa futures experienced a slight downturn on Wednesday. The March ICE NY cocoa contract closed 6 points lower, a 0.12% decrease, while the December ICE London cocoa #7 contract fell 10 points, a 0.27% decline. Despite these minor losses, cocoa prices remain trading above the significant 1.75-year lows reached the previous week.
A key development influencing the market was the European Parliament’s approval of a 1-year delay to the crucial deforestation law, known as EUDR. This regulation is designed to tackle deforestation associated with commodities imported into the EU, including cocoa. The postponement allows for continued imports of agricultural products from regions like Africa, Indonesia, and South America, contributing to the perception of readily available cocoa supplies.
💡 Understanding EUDR Impact: The EU Deforestation Regulation (EUDR) aims to ensure that products sold in the EU are deforestation-free. A delay suggests a need for further adjustments or compliance measures, impacting how cocoa supply chains are managed and verified for ethical sourcing.
Anticipated Bumper Crops and Farmer Optimism
Adding to the downward pressure on cocoa prices are strong expectations for a substantial cocoa crop harvest across West Africa. Farmers in Ivory Coast report healthy cocoa trees, with recent dry weather proving beneficial for drying harvested beans. Similarly, farmers in Ghana are experiencing favorable weather patterns that are accelerating the development of cocoa pods.
Mondelez, a major chocolate manufacturer, recently highlighted these positive production prospects. They noted that the latest cocoa pod count in West Africa is approximately 7% above the five-year average, indicating a significantly higher yield compared to the previous year’s crop. The main crop harvest in Ivory Coast, the world’s largest cocoa producer, has just commenced, and farmers are expressing optimism regarding the quality of the beans.
Trade Policy and Supply Dynamics
Previous market sentiment was also influenced by a trade policy shift. An announcement from the Trump administration indicated the removal of 10% reciprocal tariffs previously imposed on commodities not grown in the US, including cocoa, as well as a 40% tariff on food imports from Brazil. Brazil’s significant role as a top 10 cocoa-producing nation means such tariff changes can impact global cocoa flows.
Conversely, reduced cocoa arrivals at ports in Ivory Coast are providing some underlying support to cocoa prices. Official government data revealed that from the start of the current marketing year (October 1) through November 23, Ivory Coast farmers shipped 618,899 metric tons of cocoa to ports. This figure represents a slight decrease of 3.7% compared to the 642,500 metric tons recorded during the same period in the prior year.
📊 Inventory Watch: Shrinking cocoa inventories are a bullish signal for the commodity. ICE-monitored cocoa stocks held at U.S. ports recently fell to their lowest level in 8.5 months, reaching 1,709,185 bags. This reduction in readily available supply can help counterbalance bearish news.
Global Demand Trends and Economic Signals
A significant bearish factor for cocoa prices is the prevailing weakness in global cocoa demand. The CEO of chocolate-maker Hershey recently described chocolate sales during the Halloween season as disappointing. Given that Halloween accounts for nearly 18% of annual U.S. candy sales, this signals potential headwinds for the confectionery market.
Further evidence of subdued demand comes from Asia and Europe. The Cocoa Association of Asia reported a sharp 17% year-over-year decrease in Q3 cocoa grindings, reaching 183,413 metric tons, marking the lowest Q3 total in nine years. Similarly, European cocoa grindings for Q3 declined by 4.8% year-over-year to 337,353 metric tons, the lowest figure for the third quarter in a decade.
While North American cocoa grindings showed a modest increase of 3.2% year-over-year in Q3 to 112,784 metric tons, this rise was reportedly skewed by the inclusion of new reporting companies. Moreover, data from research firm Circana indicated that North American sales volume for chocolate candy decreased by over 21% in the 13 weeks ending September 7, compared to the same period last year.
Regional Production Forecasts and Global Deficits
A supportive factor for cocoa prices stems from anticipated lower production in Nigeria, currently the world’s fifth-largest cocoa producer. The Cocoa Association of Nigeria projects a year-over-year decrease in production for the 2025/26 season, estimating it to fall by 11% to 305,000 metric tons, down from a projected 344,000 metric tons for the 2024/25 crop year. Nigeria’s September cocoa exports remained unchanged year-over-year at 14,511 metric tons.
The International Cocoa Organization (ICCO) has revised its forecast for the 2023/24 global cocoa deficit upward to 494,000 metric tons, representing the largest deficit seen in over six decades. The ICCO noted a significant 13.1% year-over-year drop in global cocoa production for 2023/24, totaling 4.380 million metric tons. Consequently, the global cocoa stocks-to-grindings ratio declined to a 46-year low of 27.0%.
📌 Future Outlook Shift: For the 2024/25 season, the ICCO anticipates a reversal, estimating a global cocoa surplus of 142,000 metric tons. This would mark the first surplus in four years. Global cocoa production is projected to increase by 7.8% year-over-year to 4.84 million metric tons.
Frequently Asked Questions about Cocoa Market Dynamics
Why did cocoa prices fall slightly despite the EUDR delay?
While the delay in the EU deforestation law initially suggests more ample supply, other factors like strong harvest expectations in West Africa and weak global demand are currently exerting more downward pressure on cocoa prices. The delay is also seen as normalizing continued imports.
What is the significance of reduced cocoa arrivals in Ivory Coast?
Reduced arrivals at ports in the world’s largest cocoa-producing nation indicate that less cocoa might be immediately available for export, which typically provides support for future prices. However, this is currently being overshadowed by production forecasts.
How is weak global demand affecting the cocoa market?
Weak demand, evidenced by disappointing seasonal sales and significant decreases in cocoa grindings across Asia and Europe, suggests that consumers and manufacturers are purchasing less chocolate and cocoa products. This directly impacts price as overall consumption shrinks.
What does the ICCO forecast for global cocoa production in 2024/25?
The International Cocoa Organization (ICCO) forecasts a global cocoa surplus of 142,000 metric tons for the 2024/25 season. This is a significant shift from the ongoing deficits and is driven by an expected 7.8% year-over-year increase in global cocoa production.
Conclusion and Near-Term Outlook
The cocoa market is currently navigating a complex interplay of factors. While lower prices are being driven by the expectation of abundant harvests in key producing regions and persistently weak global demand, there are underlying supportive elements. These include reduced cocoa arrivals from Ivory Coast and declining inventory levels in key consumer markets.
The EUDR delay offers a reprieve from immediate regulatory supply disruptions, but the long-term implications for sustainable cocoa sourcing remain. Traders will be closely monitoring upcoming production reports and consumption data to gauge the balance between supply and demand as the market moves forward.
