Cocoa tumbles 4% hitting 4-month lows on ICCO surplus, rising ICE inventories 📉

Futures on COCOA tumble 4% today on ICE, hitting 4-month lows pressured by improving supply, easing tight-market tensions and pressuring large speculators from the long positioning. 

• The global cocoa market is experiencing a shift, with the International Cocoa Organization (ICCO) forecasting a surplus of 142,000 metric tons for the 2024/25 season—marking the first oversupply in four years. According to ICCO projections, global cocoa production is expected to surge nearly 8% year-over-year, reaching 4.84 million metric tons (MMT).
• Adding to the conversation around market fundamentals, Hershey—one of the world's largest chocolate producers—recently emphasized that cocoa futures pricing continues to be influenced by supply and demand dynamics.

Rising ICE inventories 

• ICE-monitored cocoa inventories at U.S. ports have seen a notable recovery after hitting a 21-year low of approximately 1.26 million bags on January 24. By Thursday, stocks had climbed to a nearly four-month high of 1.64 million bags, indicating improved supply conditions.
• Meanwhile, Nigeria, the world’s fifth-largest cocoa producer, reported a 27% year-over-year surge in January cocoa exports, reaching 46,970 MT. This significant boost highlights increased supply from West Africa, a key producing region.

Mixed signals from Ivory Coast

• Ivory Coast, the world’s largest cocoa exporter, remains a critical factor in global supply trends. Government data shows that from October 1 to March 9, Ivorian farmers have shipped 1.40 MMT of cocoa, a 15% increase from the previous year. However, this growth rate has slowed considerably compared to December's 35% surge, raising concerns about future export trends.
• Ivory Coast, the world’s largest cocoa producer, is bracing for a smaller-than-usual mid-crop as dry weather conditions, particularly the Harmattan winds, threaten yields. The secondary harvest, which begins in April, is projected to reach around 400,000 tons, down from 440,000 tons last year, according to Bloomberg estimates.
• While some analysts point to recent rainfall in western regions as a potential boost for the latter part of the harvest, concerns remain over bean quality and overall supply levels. Local cocoa processors fear that adverse weather has weakened trees, leading to fewer and lower-quality pods.
• Global cocoa stockpiles remain tight, and despite ICCO’s recent 142,000-ton surplus projection, some experts still anticipate a supply shortfall. The main crop season starting in October will now be in focus, as adequate rainfall in the coming months will be essential to stabilizing production.

Demand worries

• Despite the rise in supply, demand-side pressures are weighing on cocoa prices. Executives from leading chocolate manufacturers Hershey and Mondelez have voiced concerns over how record-high cocoa prices are impacting consumer demand.
• Hershey executives acknowledged in February that elevated costs are forcing the company to alter its product formulations, replacing cocoa with alternative ingredients to mitigate rising expenses. This shift underscores the potential long-term implications of expensive cocoa on the chocolate industry.
• While the cocoa market is currently navigating a surplus outlook and shifting demand patterns, price volatility remains a key theme as traders and producers assess the balance between supply strength and consumer sentiment.

COCOA (D1 interval)

Source: xStation5