Cocoa futures experienced a significant downturn for the second consecutive day, with prices falling sharply amid growing optimism for a strong harvest in West Africa. Favorable weather conditions in top-producing nations Ivory Coast and Ghana are fueling expectations of a bumper crop, easing supply concerns that have dominated the market for months.
On Thursday, December ICE New York cocoa contracts closed down 3.30%, while London cocoa futures fell 3.08%. This price correction comes as the market weighs positive production news against persistent signs of weakening global chocolate demand.
Key Takeaways
- Cocoa futures dropped significantly due to expectations of a large harvest in Ivory Coast and Ghana.
- Weakening global demand for chocolate, reflected in poor sales in North America and lower grindings in Europe and Asia, is pressuring prices.
- Despite the recent fall, cocoa's upcoming inclusion in the Bloomberg Commodity Index is expected to drive significant investment inflows.
- Contradictory market signals include declining exports from the Ivory Coast and shrinking cocoa inventories in U.S. ports.
West African Harvest Outlook Improves
Reports from farmers in the Ivory Coast and Ghana, the world's two largest cocoa producers, have been overwhelmingly positive. Cocoa trees are reportedly in good health, and recent dry weather has been ideal for drying harvested beans. In Ghana, farmers noted that favorable conditions are helping cocoa pods develop quickly.
This anecdotal evidence is supported by industry analysis. Chocolate manufacturer Mondelez recently reported that the latest cocoa pod count in West Africa is 7% above the five-year average and substantially higher than last year's crop. As the main harvest in the Ivory Coast gets underway, the market is reacting to the potential for a significant supply increase.
From Deficit to Surplus
The International Cocoa Organization (ICCO) recently highlighted the market's volatility. While the 2023/24 season saw a historic global deficit of 494,000 metric tons, the largest in over 60 years, the outlook is changing. For the 2024/25 season, the ICCO projects a global surplus of 142,000 metric tons, which would be the first surplus in four years.
Global Chocolate Demand Shows Signs of Weakness
While supply forecasts improve, demand indicators are flashing warning signs. High cocoa prices appear to be impacting consumer behavior, leading to a slowdown in chocolate consumption across key markets.
Data from research firm Circana revealed that North American sales volume of chocolate candy fell by more than 21% in the 13 weeks ending September 7 compared to the same period last year. This trend was echoed by the CEO of Hershey, who described chocolate sales during the recent Halloween season as "disappointing." Halloween typically accounts for nearly 18% of annual U.S. candy sales.
Global Grindings Decline
Cocoa grinding, a key measure of demand, has fallen in major regions:
- Asia: Q3 grindings fell by 17% year-over-year, reaching a nine-year low for the quarter.
- Europe: Q3 grindings dropped 4.8% year-over-year, marking the lowest third-quarter figure in a decade.
These figures suggest that chocolate manufacturers are processing less cocoa in response to decreased consumer appetite, adding further downward pressure on prices.
Conflicting Signals Create Market Uncertainty
Despite the bearish sentiment driven by crop forecasts and weak demand, several underlying factors could support cocoa prices in the near future. One of the most significant developments is cocoa's planned inclusion in the Bloomberg Commodity Index (BCOM) for the first time in two decades, starting in January.
"Funds will have to buy about $1.9 billion in cocoa futures over the next 80 days."
According to Peak Trading Research LLC, this move could trigger a massive influx of capital. With assets tracking the BCOM index totaling nearly $109 billion, cocoa's 1.7% weighting is expected to force passive funds to purchase a substantial volume of futures contracts.
Supply Chain and Inventory Data
Other data points also present a more complex picture. Government figures from the Ivory Coast show that from October 1 to November 2, farmers shipped 304,840 metric tons of cocoa to ports. This is a 16% decrease from the 365,072 metric tons shipped during the same period a year ago.
Furthermore, cocoa inventories monitored by ICE in U.S. ports have been shrinking. On Thursday, stockpiles fell to a 7.5-month low of 1,793,757 bags, indicating tighter immediate supply in some areas. These conflicting signals are creating a volatile trading environment as investors attempt to balance long-term supply potential against short-term market tightness and future financial flows.
