Why are cocoa prices falling sharply as market approaches year's low

On Friday, the price of cocoa on the Intercontinental Exchange (ICE) in New York experienced a significant drop, falling below the $7,500 per ton threshold. 

This decline brings the commodity's price within less than $300 of the year's lowest point, which was recorded in July. 

The proximity to this low suggests a notable downward trend in the cocoa market, reflecting potential shifts in supply, demand, or broader economic factors influencing commodity prices. 

Volatility

This movement is particularly noteworthy given the volatility often seen in agricultural commodities, where factors such as weather patterns, geopolitical events, and global consumption trends can exert considerable influence.

Though prices have since then risen to $7,629 per ton due to a weaker dollar, it still fell nearly 5% on Tuesday. 

Meanwhile, cocoa prices on the ICE in London declined to GBP 5,270 per ton.

Prices have dropped considerably from their peak of $11,280 and GBP 7,860 per ton, observed approximately three months prior.

“The weakness in prices is likely to be due to demand concerns triggered by weak cocoa grinding figures in Europe, Asia, and North America for the second quarter,” Carsten Fritsch, commodity analyst at Commerzbank, said in a report. 

These tariffs increase the cost of imported cocoa, making it more expensive for US manufacturers and consumers. 

The elevated price could lead to reduced purchasing, as companies might seek cheaper alternatives or pass the increased costs onto consumers, potentially dampening overall consumption. 

Such tariffs could ultimately diminish the competitiveness of tariff-affected cocoa-producing countries in the US market, impacting global trade flows and potentially slowing the growth of the US chocolate and confectionery industries.

Crop overview

Fritsch said:

Consequently, anticipation is high for the upcoming quarterly report, slated for publication by week's end.

Since then, cocoa arrivals at Ivory Coast ports, the primary producing country, have offered insights into supply.

Momentum has noticeably decreased. According to Bloomberg, citing sources familiar with government data, arrivals since the beginning of the crop year (eleven months ago) until August 24 totaled just under 1.8 million tons. This represents only a 6% increase compared to the same period last year.

Exporter estimates, as reported by Reuters, indicate that cumulative arrivals since the beginning of the crop year have decreased by 1.9% year-on-year, reaching 1.66 million tons.

Cumulative arrivals since the mid-crop began in April are 30% lower than last year, indicating a weak mid-crop, according to Fritsch. 

A better harvest and the critical need to replenish stocks, which significantly decreased due to last crop year's record supply deficit, will likely have to wait until the next crop year, beginning in October.

Fritsch added: