Cocoa prices have experienced a significant decline, reaching seven-week lows amid expectations of weak global demand. On March 1, 2024, cocoa futures on the Intercontinental Exchange (ICE) in New York fell by 150 points, or 2.87%, while London cocoa futures dropped by 96 points, down 2.51%. This downward trend raises concerns about the cocoa market’s future as analysts anticipate disappointing grinding figures for the fourth quarter of 2023.
The upcoming release of cocoa grinding statistics is expected to confirm continued stagnation in demand. Analysts predict that European cocoa grindings will fall by 2.9% year-on-year, marking the lowest level for a fourth quarter in over a decade. Similarly, cocoa grindings in Asia are forecasted to decline by 12% year-on-year, also reaching a ten-year low. These figures indicate a troubling trajectory for the cocoa industry, particularly given the reliance on these regions for demand.
Favorable Harvest Conditions and Supply Dynamics
The current cocoa pricing landscape is influenced significantly by supply conditions. Favorable weather in West Africa is expected to enhance the February-March cocoa harvest, particularly in the Ivory Coast and Ghana. According to the Tropical General Investments Group, farmers have reported larger and healthier cocoa pods compared to the previous year. Notably, chocolate maker Mondelez has indicated that the latest cocoa pod count in the region is 7% above the five-year average, suggesting a potential boost in production levels.
Despite the positive harvest outlook, cocoa prices remain under pressure due to weak demand signals. Data from the Ivory Coast, which is the world’s largest cocoa producer, shows that farmers have shipped 1.13 million metric tons (MMT) of cocoa to ports from October 1, 2023, to January 11, 2024, reflecting a 2.6% decrease from the same period last year.
The market is also reacting to broader supply concerns linked to anticipated index-related buying. The addition of cocoa futures to the Bloomberg Commodity Index (BCOM) is expected to attract up to $2 billion in buying interest, according to Citigroup. This potential increase in investment could provide some support for cocoa prices, especially as global inventories tighten.
Global Production Estimates and Regulatory Challenges
Recent reports from the International Cocoa Organization (ICCO) highlight a concerning shift in global cocoa production estimates. The ICCO has revised its surplus forecast for 2024/25 down to 49,000 MT from a previous estimate of 142,000 MT, while also lowering its production estimate to 4.69 MMT. This adjustment comes amid indications of a shrinking global supply outlook, which is compounded by other significant factors.
Regulatory developments in Europe, particularly regarding the EU deforestation law, have also impacted cocoa supply dynamics. On November 26, 2023, the European Parliament approved a one-year delay to this law, which is intended to address deforestation linked to commodity imports. This postponement allows imports from regions where deforestation is prevalent, thereby keeping cocoa supplies relatively abundant.
In Nigeria, the fifth-largest cocoa producer globally, projections indicate a 11% decrease in production for the 2025/26 crop year, falling to 305,000 MT from an expected 344,000 MT for the 2024/25 year. The Nigerian Cocoa Association reported unchanged exports for September 2023 at 14,511 MT, suggesting stability in export levels despite production concerns.
As the cocoa market adapts to these various pressures, the overall outlook remains cautious. The combination of weak demand, regulatory changes, and shifting production estimates presents a complex landscape for stakeholders in the cocoa industry. With prices under continued strain, producers and traders alike are closely monitoring developments to navigate the evolving market conditions.
