The Cocoa Crop Looks Bigger But It Won’t Solve Chocolate Crisis
Cocoa harvests are looking better for the new season, but it may not be enough to bring chocolate costs down much.
After poor crops in West Africa fueled huge bean shortages and turmoil across the market this year, focus has turned to how production will fare in the 2024-25 season that officially starts next week. Global output may exceed demand by about 90,000 tons, according to the average of 15 analyst and trader estimates compiled by Bloomberg, partly due to better harvests in top grower Ivory Coast.
The more optimistic outlook and a roughly 30% drop in cocoa futures from April’s record suggests the worst of the crisis may have passed. But the crunch forced chocolatiers to draw stockpiles down to the lowest in decades, and it will be a challenge to rebuild those inventories with only a small surplus emerging. That risks keeping prices historically high for a while yet.
The cocoa balance sheet has “no room for error,” Eric Bergman, head of the cocoa and coffee trading desk at JSG Commodities, said at the CAA International Cocoa Conference this month. While he expects a small surplus, “if we were to see a deficit next year, things could really shift very quickly to the upside in terms of price.”
Futures soared above $11,000 a ton in New York earlier this year after adverse weather and crop diseases hurt aging trees in West Africa, where most of the world’s beans are grown. That stressed traders and forced chocolate makers to pass on higher costs to consumers, produce smaller bars or use less cocoa.
The International Cocoa Organization last month pegged the 2023-24 shortfall at 462,000 tons, the most in decades. But analysts expect a more balanced market for 2024-25 as conditions have been more favorable recently in Africa, benefiting the main crop, the larger of two annual harvests.
Still, there are signs that supplies will stay tight. Futures remain well above average and the ICCO estimates world stockpiles at the lowest since 2002. The new season’s expected surplus won’t be enough to return inventories to a comfortable level and prices are unlikely to weaken significantly in the medium term, said Jonathan Parkman, head of agricultural sales at broker Marex Group.
“A ripple effect from this season will likely roll into the new year,” said Darren Stetzel, vice president of soft commodities for Asia at broker StoneX. “While supply is likely to improve, the futures market will likely remain under pressure.”
There’s still plenty of time for weather to improve or hurt prospects for both the main crop and the smaller mid-crop that’s harvested from around April. And recent severe floods in West Africa — while not causing major damage to cocoa farms — are a reminder of weather threats growers face.
Adding to the challenges, structural issues like crop disease, relatively low pay for African farmers that’s curbing investment in plantations, and the sale of farmland for illegal gold mining risk limiting a rebound in production.
To help address such problems, the largest producers have raised prices. No. 2 grower Ghana this month said it’s hiking farmer pay by 45% for the new season, while Bloomberg reported that Ivory Coast is considering an increase of at least 23%. Even so, both fall well short of prices in the global market.
The market will also keep a close eye on demand. Analysts and traders surveyed by Bloomberg expect consumption to slow in the coming season as chocolatiers buy less or use alternatives to cut back on costs. Bean processing has been surprisingly strong so far this year, and the next quarterly figures due in October will give more clues on whether that has held up.
“We won’t see a strong drop in demand but rather a gradual and slow erosion in cocoa volumes used,” said Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company UK Ltd., a subsidiary of the country’s regulator. “It will be more of manufacturers using less chocolate in their recipes rather than consumers cutting back on consumption.”
