Cocoa Prices Decline Amid Global Supply Concerns

Cocoa prices continue to decline as global supply concerns escalate. Spotty rainfall in major cocoa-producing countries is affecting crop yields, while chocolate makers face soaring costs. Investors should monitor these developments for potential impacts on cocoa-related companies.

Date: 13-02-2025

AI Rating: 6

**Cocoa Price Trends and Market Dynamics**
The report indicates a recent decline in cocoa prices, with March ICE NY cocoa down 0.68%. This drop follows an early rally that was interrupted by a rise in the dollar index, signaling long liquidation in cocoa futures. Such price behavior can create volatility in cocoa-related stocks, impacting investor sentiment.

**Cocoa Production and Demand**
Farming conditions in Ivory Coast and Ghana, which are the leading cocoa-producing regions, are alarming as recent rainfalls have been insufficient. Cocoa farmers reported that adverse weather has hindered tree regeneration and flowering, which could lead to reduced future supply. Hence, this situation indicates potential upward pressure on cocoa prices due to a shrinking supply in the coming cycles.

**Export Concerns**
Despite a year-over-year increase in shipments from the Ivory Coast, data suggests that the rate of cocoa exports has recently slowed. The current statistics show exports of 1.32 MMT, representing a narrower increase compared to previous months, indicating a potential supply crunch that could further elevate prices. The overall declining demand is exemplified by statements from chocolate manufacturers, including Hershey and Mondelez International, citing rising prices forcing them to reformulate recipes, potentially affecting product availability and market dynamics.

**Stockpile Concerns**
The International Cocoa Organization (ICCO) has indicated significant stockpile reductions, estimating a global cocoa deficit of -478,000 MT. Moreover, tighter inventories, particularly in US ports, could suggest a prolonged price increase if these trends continue.

**Impact of External Factors**
Global inventories have dropped to 21-year lows, while weather forecasts indicate that this season’s Harmattan winds are drier than in past years, worsening crop conditions. These external factors could lead to bullish price projections. Interestingly, the report also mentions that Nigeria’s cocoa exports rose significantly, which may counterbalance some pricing pressures.

**Company Impact**
Given these trends, stocks of cocoa-dependent companies such as Hershey Co. may see fluctuating investor confidence as they navigate high input costs and changing consumer demand.

Stocks: HSY MDLZ