Cocoa Market Faces Mixed Signals Amid Supply, Quality Concerns

The cocoa market showed mixed performance, influenced by currency fluctuations. Concerns over the Ivory Coast mid-crop's quality may support prices, while rising inventories and consumer demand uncertainty could challenge profitability for companies in the sector.

Date: 13-05-2025

AI Rating: 5

Market Reaction to Cocoa Prices: The latest report outlines mixed trends in the cocoa market, with NY cocoa prices falling while London prices rose. The impact of currency fluctuations, notably the strengthening of the dollar against the British pound, has contributed to this mixed performance.

One critical factor to consider is the rebound in cocoa inventories. The increase from a 21-year low to a 7-1/2 month high could exert downward pressure on cocoa prices, making investors cautious in the short term. Additionally, quality concerns regarding the Ivory Coast's mid-crop may lend some support to pricing as the crop currently faces significant quality issues, which has led to rejections by processors.

Impact on Revenue and Net Income: Companies like Barry Callebaut AG and Hershey Co. have already reported expected declines in sales due to high cocoa prices driven by supply concerns. Such negative sales forecasts can impact revenue growth and net income for these companies. Hershey’s recent announcement of a 14% drop in Q1 sales raises flags about potential profitability under continued high costs and consumer demand pressure. Meanwhile, Mondelez International also reported weaker-than-expected Q1 sales.

On the supply side, the International Cocoa Organization's prediction of a global cocoa surplus in 2024/25 and declining production forecasts from key producers like Ghana indicate potential oversupply. This oversupply could further exacerbate declining cocoa prices and negatively affect profit margins of involved companies.

Demand Insights: Despite negative supply forecasts, global cocoa grindings have shown some resilience, with lower-than-expected declines in Q1. This tepid demand growth emphasizes that while prices are currently elevated, a broader concern about consumers cutting back on spending could ultimately affect future revenues for cocoa-dependent companies.

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