Week 30: Cocoa Market Summary
Ivory Coast Faces Cocoa Quality Crisis Amid Export Slowdown, While Global Market Weakens Under Surplus Fears and Falling Demand.
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Ivory Coast:
Ivory Coast is grappling with challenges in both the quantity and quality of its mid-crop cocoa production. The quantity of mid-crop beans has diminished, expected to total around 400,000 metric tonnes, which is a 9% decrease from the prior year. Moreover, 5 to 6 percent of beans per truckload are now defective, a substantial increase from the usual 1 percent. This issue is critical as it could impair the country's export capabilities, which has already begun to show signs of slowing down with only a 6.1 percent yearly growth compared to the 35 percent increase observed in December. Additionally, upcoming EU deforestation regulations are creating considerable distress among smaller cocoa firms in Ivory Coast, threatening their viability due to the stringent compliance requirements.
Global Market Context:
The global cocoa demand is weakening, with reductions in chocolate sales evidenced by decreased grind data from major regions and poor financial performances from top chocolate producers like Barry Callebaut and Lindt & Spruengli. European grindings have decreased by 7.2 percent, Asia by 16.3 percent, and North America by 2.8 percent year-over-year. Moreover, U.S. cocoa inventories have reached a 10.5-month high, and there are forecasts of a global surplus for the 2024/25 season by the ICCO, suggesting a bearish market for cocoa prices. Despite this, the ICCO has also noted a previous deficit and a decline in production, signaling potential volatility in supply patterns.
Strategy and Long-term Projections:
The cocoa market remains unstable with potential for sudden price increases due to short-term supply disruptions or speculative trades. For a sustained recovery in cocoa price levels, either a spike in global demand or further worsening of crop conditions would be required. With rising challenges such as increased input costs highlighted by Hershey’s decision to hike candy prices, the industry stands at a critical point where balancing production expenses and consumer pricing will be crucial to maintaining market stability.
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