Cocoa Prices Decline Amidst Supply Surplus and Demand Woes

Cocoa prices continue to fall as supply increases and demand weakens. The market is reacting negatively to a stronger dollar and forecasted surpluses, with potential impacts on major players like Hershey and Mondelez.

Date: 01-04-2025

AI Rating: 5

Market Overview: Cocoa prices have experienced a significant decline, closing down on Monday due to a stronger U.S. dollar and an increased supply outlook. Meta Reports indicate cocoa prices are at their lowest in 4-1/2 months. Recently, a surplus of 142,000 metric tons for the global cocoa market has been expected for 2024/25, which signifies a noteworthy easing of the cocoa supply after years of deficits.

Supply Dynamics: The improvement in cocoa inventories, rising to a 5-month high from a 21-year low, demonstrates greater availability. Particularly concerning for price stability, the upcoming mid-crop production in the Ivory Coast is expected to be 9% lower than the previous year, which may present a potential limit to how low prices could fall.

Demand Concerns: High cocoa prices have been cited by major chocolate manufacturers, including Hershey and Mondelez, as leading to reduced demand for chocolate products. Executives have indicated that ongoing price pressures are forcing them to adjust formulations and are also leading to an overall decline in cocoa grindings within key markets like North America and Europe. The negative consumer response to rising chocolate prices presents a worrying trend for cocoa demand in the near-term.

Regional Insights: The impact of other cocoa-producing regions such as Nigeria and Ghana also plays a critical role. Despite having reported a significant rise in exports, Ghana's outlook has seen downward revisions which may tighten supplies. The recent report from the ICCO highlighted the largest cocoa deficit in over 60 years, showing a significant drop in production values.

Overall, the balance of supply and demand remains precarious as cocoa prices face downward pressure amidst rising global production forecasts and declining consumer demand, especially in North America. The aggregate effect of these factors may make it challenging for major chocolate producers to stabilize their sales, influencing their stock performance accordingly.

Stocks: HSY MDLZ