May ICE NY cocoa (CCK25) Wednesday closed down -310 (-3.70%), and May ICE London cocoa #7 (CAK25) closed down -233 (-3.53%).

Cocoa prices Wednesday fell sharply but remained just above Tuesday's 3-1/2 month lows.  An improving supply outlook is weighing on cocoa prices after the International Cocoa Organization (ICCO) last Friday forecasted a global cocoa surplus of 142,000 MT for 2024/25, the first surplus in 4 years.  ICCO also forecasted that 2024/25 global cocoa production will rise +7.8% y/y to 4.84 MMT.

Losses in London cocoa accelerated Wednesday after the British pound (^GBPUSD) rallied to a 3-3/4 month high.  The stronger pound weighs on cocoa that is priced in terms of sterling.

Also on the bearish side, Nigeria reported last Thursday that its Jan cocoa exports jumped +27% y/y to 46,970 MT.  Nigeria is the world's fifth-largest cocoa producer.

Demand concerns are also undercutting cocoa prices.  Executives from chocolate makers Hershey and Mondelez recently warned that high prices are hurting demand.  On February 4, Mondelez executives warned of a potential slowdown in chocolate demand when CFO Zarmella said, "We are seeing signs, particularly in parts of the world like North America, where cocoa consumption is coming down."  Also, on February 18, the company warned that chocolate prices could rise as much as 50% due to the surge in cocoa prices, which would curb chocolate demand.  In addition, Hershey executives said on February 6 that high cocoa prices are forcing it to reformulate recipes by replacing cocoa with other ingredients.  

High cocoa prices reduced cocoa demand in Q4, as seen in the quarterly grinding reports.  On January 9, the European Cocoa Association reported that Q4 European cocoa grindings fell -5.3% y/y to 331,853 MT, the lowest in more than 4 years.  Also, the Cocoa Association of  Asia reported that Q4 Asian cocoa grindings fell -0.5% y/y to 210,111 MT, also the lowest in 4 years.  In addition, the National Confectioners Association reported that Q4 North American cocoa bean grindings fell -1.2% y/y to 102,761 MT.

Concern about slowing Ivory Coast cocoa exports is a supportive factor for cocoa prices.  While government data today showed Ivory Coast farmers shipped 1.39 MMT of cocoa to ports so far in this marketing year from October 1 to March 2, up +17% from last year, the pace has fallen from the 35% rise seen in December.

Tight global cocoa inventories are bullish for prices.  ICE-monitored cocoa inventories held in US ports have been trending lower for the past 1-1/2 years and fell to a 21-year low of 1,263,493 bags on January 24.  However, as of Monday, cocoa inventories have since recovered to a 2-3/4 month high of 1,463,836 bags.

Smaller cocoa supplies from Ghana, the world's second-biggest cocoa producer, are supportive for prices after Cocobod, Ghana's cocoa regulator, cut its Ghana 2024/25 cocoa harvest forecast in December for the second time this season to 617,500 MT, down -5% from an August estimate of 650,000 MT.  

The ICCO last Friday said the 2023/24 global cocoa deficit was -441,000 MT, the largest deficit in over 60 years.  ICCO said 2023/24 cocoa production fell -13.1% y/y to 4.380 MMT.  ICCO said the 2023/24 global cocoa stocks/grindings ratio was 27.0%, a 46-year low.