May ICE NY cocoa (CCK25) Tuesday closed down -128 (-1.52%), and May ICE London cocoa #7 (CAK25) closed down  -125 (-1.91%).

Cocoa prices on Tuesday posted moderate losses, weighed down by a recovery in cocoa inventories.  Since falling to a 21-year low of 1,263,493 bags on January 24,  ICE-monitored cocoa inventories held in US ports have rebounded and climbed to a 3-1/4 month high of 1,530,893 bags on Monday.  

Losses in London cocoa accelerated Tuesday after the British pound (^GBPUSD) rose to a 4-month high.  The stronger pound undercuts cocoa that is priced in terms of sterling.

Cocoa prices have been on the defensive over the past two weeks and fell to 3-1/2 month lows last Tuesday on an improving supply outlook.  On February 28,  the International Cocoa Organization (ICCO) forecasted a global cocoa surplus of 142,000 MT for 2024/25, the first surplus in 4 years.  ICCO also projected that 2024/25 global cocoa production will rise +7.8% y/y to 4.84 MMT.

Concern about slowing Ivory Coast cocoa exports is a supportive factor for cocoa prices.  While government data Monday showed Ivory Coast farmers shipped 1.40 MMT of cocoa to ports so far in this marketing year from October 1 to March 9, up +15% from last year, the pace has fallen from the 35% rise seen in December.

Also on the bearish side, Nigeria reported on February 27 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 weighing on 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.

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 on February 28 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.