Cocoa Prices Fall Amid Supply Surplus and Demand Concerns

Cocoa prices have sharply declined due to an improving supply outlook and changing demand dynamics, marking a critical period for investors. The significant price drop may lead to fluctuations in stock prices for companies in the chocolate sector.

Date: 06-03-2025

AI Rating: 4

Supply Outlook: Cocoa prices experienced a notable reduction, attributed primarily to an improving supply scenario. The International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 MT for 2024/25, marking the first surplus in four years. This rise in forecasted production of +7.8% year-on-year to 4.84 MMT is a key factor driving down prices.

Demand Concerns: One of the more alarming aspects impacting cocoa prices is the declining demand. Major chocolate producers, such as Hershey and Mondelez, have expressed concerns that increasing cocoa prices are dampening consumption. Mondelez's warning about a potential slowdown in chocolate demand is particularly significant, as it could lead to lower sales and profitability for companies reliant on cocoa.

Grinding Reports: Recent grinding reports show clear evidence of demand weakness in key markets. The European Cocoa Association noted a -5.3% year-on-year decline in Q4 European cocoa grindings, reaching their lowest in over four years, while North American cocoa grindings also fell -1.2% year-on-year.

Inventory Trends: While tight global cocoa inventories typically support prices, recent trends indicate a recovery, with ICE-monitored inventories rising to a 2-3/4 month high. Additionally, smaller supplies anticipated from Ghana, following a cut in production forecasts by Cocobod, may provide some price support.

Market Rating: The overall sentiment in this analysis leans negative due to a combination of surplus supply and declining demand, which suggest that cocoa prices may continue under pressure in the near term.

Stocks: HSY MDLZ