Cocoa Prices Decline Amid Supply and Demand Concerns

Cocoa prices face downward pressure as production forecasts improve in West Africa. This could impact companies in the cocoa supply chain negatively, especially as high prices and tariffs reduce consumer demand. Investors should consider current market conditions for cocoa-related stocks.

Date: 29-05-2025

AI Rating: 5

Market Overview: Cocoa prices are currently under pressure, hitting two-week lows primarily due to forecasts of favorable rain in West Africa. This meteorological change is expected to aid cocoa crop development, which directly affects supply levels and price points. As the largest cocoa-growing region, any improvement in rainfall could lead to better yields, consequently driving prices down.

Cocoa Inventories and Quality Issues: The rebound of ICE-monitored cocoa inventories in U.S. ports has created a bearish environment for cocoa prices. After recently reaching an 8-month high following a significant drop earlier in the year, this increase in supply may impact price stability. Additionally, quality concerns regarding the mid-crop cocoa from the Ivory Coast, affecting around 5-6% of truckloads versus just 1% during the main harvest, may lead to further downward pressure as processors reject lower-quality beans.

Supply Forecasts: The forecast of a -9% reduction in this year's Ivory Coast mid-crop from last year is a key focus point for market observers. Coupled with diminished export growth from Ivory Coast, these factors signal potential tightness in future cocoa supplies, which might lend some support to current prices in an otherwise bearish environment.

Consumer Demand Dynamics: A reduction in cocoa consumer demand, as highlighted by companies like Barry Callebaut AG and Hershey Co., raises alarms. Concerns about tariff-related costs are further compounding expectations for softened demand amidst already high cocoa prices. This scenario could lead to an adverse effect on stocks dependent on cocoa, as reduced sales could impact revenue growth for companies involved in the cocoa product market.

Investor Sentiment: The combination of falling cocoa prices alongside an anticipated consumer demand reduction reflects a challenging environment for cocoa-related equities. Buyers may be concerned about high tariffs and the potential negative effects on consumer habits, warranting caution before placing bullish bets. While there are incoming positive signals regarding overall demand through better-than-expected grindings, caution should prevail until more substantial evidence of demand recovery is visible.

Stocks: HSY MDLZ RYMBF