Cocoa Prices Crash as ICCO Forecasts Surplus

Cocoa futures took a nosedive today; the sell-off came after the International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 metric tons (MT) for 2024/25—the first surplus in four years. The forecast also predicts a 7.8% increase in global cocoa production to 4.84 million MT, adding downward pressure on prices.

Key Factors Driving the Sell-Off

1. Supply Shock: Higher Production & Strong Nigerian Exports

A major catalyst for today’s price drop is the expectation of increased cocoa supply. The ICCO’s forecast signals a market shift after years of deficits. Additionally, Nigeria, the world’s fifth-largest cocoa producer, reported a 27% year-over-year jump in January exports to 46,970 MT, further reinforcing bearish sentiment.

2. Weakening Demand from Chocolate Makers

Chocolate makers are sounding the alarm on high cocoa prices hurting demand. Mondelez (February 4) and Hershey (February 6) both warned that rising cocoa costs are forcing recipe reformulations and potential price hikes. Mondelez CFO Luca Zaramella highlighted concerns over declining cocoa consumption, particularly in North America. With consumers resisting higher chocolate prices, demand destruction could continue.

3. Weak Cocoa Grinding Data

Cocoa grindings—a key indicator of demand—fell across major regions in Q4 2023:

Europe: -5.3% y/y (lowest in 4+ years)
Asia: -0.5% y/y (lowest in 4 years)
North America: -1.2% y/y

Lower grindings confirm the impact of record-high cocoa prices on consumption, adding to the bearish outlook.

Is There Any Upside for Cocoa Prices?

Despite today’s massive sell-off, there are still bullish factors

While Ivory Coast shipments are up 17% y/y to 1.39 million MT, the growth rate has dropped from 35% in December.
Ghana’s Cocobod cut its 2024/25 production forecast to 617,500 MT, down 5% from August estimates.
While ICE-monitored cocoa inventories rebounded slightly to 1.45 million bags, they remain at historically low levels after hitting a 21-year low in January.
The ICCO reported a record -441,000 MT deficit last season, leading to supply tightness that could still influence prices.

Trading Strategy: What’s Next?

Short-Term Bearish: The ICCO surplus forecast and demand concerns suggest further downside risk. Traders should watch for continued technical weakness.
Long-Term Volatility: Supply risks in Ghana and the Ivory Coast, along with historically low inventories, could provide price support later in the year.
Key Levels to Watch: If cocoa futures break below 3-1/2 month lows, further downside is possible. However, a rebound may occur if demand stabilizes or supply issues intensify.

The Bottom Line Is

Cocoa prices are facing sell-off as the market shifts from deficit to surplus. Increased production and falling demand are driving prices lower, but long-term supply concerns could still create volatility.

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