Cocoa Prices Decline Amid Surplus Forecast and Demand Worries

Cocoa prices closed lower as a global surplus is projected for 2024/25, with demand concerns growing among chocolate manufacturers. Rising prices and FDA regulations could further impact the market.

Date: 28-03-2025

AI Rating: 5

Market Overview
Recent reports indicate cocoa prices have settled lower due to an improving supply outlook. Notably, the International Cocoa Organization (ICCO) has forecasted a global surplus of 142,000 MT for the 2024/25 harvest, marking the first surplus in four years. This is primarily driven by a 7.8% year-on-year increase in cocoa production. Such a surplus could suppress cocoa prices as market supply exceeds demand.

Supply and Demand Dynamics
The increase in cocoa inventories, which rebounded significantly since hitting a 21-year low in January to a current high, underscores the bearish sentiment surrounding cocoa prices. With the approaching mid-crop in the Ivory Coast, the smaller harvest is seen as a limiting factor to further price declines despite a forecasted 12% increase in net exports from the country.

Demand Concerns
Concerns about deteriorating cocoa demand are growing, especially as executives from major confectionery companies like Hershey and Mondelez report that high cocoa prices are leading to a decline in consumption. This trend is reflected in the reduction in cocoa grinding volumes, which fell significantly across regions like Europe and North America in Q4. The anticipated rise in chocolate prices due to cocoa costs is expected to further curb demand, which could negatively impact prices in the short-term.

Potential Risks
Complicating matters, the cocoa market faces increased competition from alternative ingredients as major producers adjust their recipes in response to soaring cocoa prices. Additionally, findings from Nigeria, which reported a 27% spike in cocoa exports, present conflicting signals for the market. While this might amplify supply, Nigeria's role as a relatively smaller producer suggests this could provide limited relief for the overall market. Furthermore, the ICCO has indicated a significant cocoa deficit of -441,000 MT for 2023/24, signifying ongoing volatility in the market and potential spikes in pricing in response to fluctuating supply and demand dynamics.

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