Cocoa Market Faces Pressure Amid Trade Fears and Demand Drop

Cocoa prices plummet as global trade concerns escalate. Executives at Hershey and Mondelez indicate high prices are curbing demand, impacting earnings. With a projected cocoa deficit and subpar crops, investors need to re-evaluate cocoa-related stocks cautiously.

Date: 05-04-2025

AI Rating: 5

Market Performance Overview: Cocoa prices closed sharply lower, with NY cocoa experiencing an 8.38% drop and London cocoa seeing a 4.66% decline. The decrease can be attributed to heightened fears of a global trade war impacting demand for cocoa and related products.

Demand Concerns: Executives from major chocolate manufacturers like Hershey and Mondelez have indicated that the high prices of cocoa are adversely affecting demand. The warning about a slowdown in chocolate consumption, particularly in North America, raises red flags for revenue projections. Mondelez also indicated a potential 50% increase in chocolate prices resulting from surging cocoa prices, which could further dampen demand.

Supply Dynamics: Recent reports show a decline in cocoa supplies, particularly from the Ivory Coast and Ghana. While there is a reported mid-crop deficit from the Ivory Coast, leading to expectations of ongoing support for cocoa prices, the global surplus forecast by the ICCO for 2024/25 potentially signifies a long-term bearish trend. The estimated surplus of 142,000 MT against declining yield forecasts may further encourage a reduction in demand from consumers due to price increases.

Inventory Levels: Rebounding cocoa inventories in the US have also contributed to bearish market sentiments. After reaching a 21-year low, the ICE-monitored cocoa inventory levels increased significantly, challenging the market’s tightly held supply narrative.

Investor Sentiment: The overall sentiment for cocoa seesaws between short-term concerns regarding escalating trade issues affecting cocoa demand and intermediate supply constraints which could stabilize prices. Investors may find it prudent to monitor market signals closely as the cocoa landscape evolves due to economic conditions.

Conclusion: Cocoa's pricing volatility appears driven by dual factors: immediate consumer demand and longer-term supply uncertainties. Investors active in cocoa-related companies should remain cautious, particularly if demand declines further amid rising costs.

Stocks: HSY MDLZ