Cocoa Prices Rally Amid Quality Concerns and Demand Woes

Cocoa prices are experiencing a moderate rally driven by supply concerns from the Ivory Coast's mid-crop quality issues. However, global demand for cocoa products faces challenges due to tariff impacts and economic uncertainties.

Date: 10-05-2025

AI Rating: 5

Cocoa Price Movement
The recent report highlights a rally in cocoa prices, particularly in the New York and London markets. The primary driver of this increase is attributed to quality issues with the Ivory Coast mid-crop, which has led to farmers rejecting significant portions of the harvest. The poor quality, tied to unfavorable weather conditions, is making the mid-crop's outlook weaker, with projections down 9% year-on-year.

**Consumer Demand Concerns**
However, while prices may increase due to supply difficulties, there are notable downward pressures. Both Barry Callebaut AG and Hershey Co. have reported negative impacts from high cocoa prices, with Hershey's sales dropping 14% in Q1. Tariff uncertainties are likely to worsen this situation by further raising costs, which can depress consumer demand. Weaker-than-expected sales figures from Mondelez International amplify this concern, indicating that consumers are curbing spending on snacks due to economic factors.

**Balancing Supply and Demand**
Cocoa inventories in the U.S. have rebounded from a 21-year low, reaching their highest levels in over half a year, which typically exerts bearish pressure on prices. The increase in Nigerian cocoa exports by 24% year-over-year adds further supply to the market. However, the global context is mixed, as recent grindings in North America, Europe, and Asia were not as bad as anticipated. This suggests a resilience in demand despite pricing pressures.

**Future Concerns**
Looking ahead, the International Cocoa Organization predicts a global cocoa surplus in the 2024/25 season, which—if realized—could lead to fundamental shifts in cocoa pricing and profitability. The cocoa production deficit for 2023/24 is significant, but with a surplus on the horizon, the market could experience downward pressure.

Overall, while the immediate outlook for cocoa pricing may reflect short-term gains due to supply constraints, the longer-term picture appears clouded by demand issues and the potential for overwhelming supply in the near future.

Stocks: HSY MDLZ