Onome Amuge
Cocoa prices experienced a sharp decline on Friday, as easing supply concerns driven by speculation of a potential exemption from new US tariffs outweighed lingering worries about West African weather.
September ICE NY cocoa futures closed down by $274, or 3.22 per cent, settling at $8,229 per metric tonne. Concurrently, September ICE London cocoa futures ended the day lower by $165, or 2.92 per cent, closing at £5,502 per metric tonne.
The primary catalyst for Friday’s sell-off was growing speculation that cocoa, along with other goods not produced domestically, would be exempted from President Trump’s recently announced import tariffs. US Commerce Secretary Lutnick had hinted at such exemptions earlier in the week, providing a degree of relief to a market that had rallied significantly over concerns that tariffs could impede trade flows.
Earlier in the week, cocoa prices had risen to one-month highs, fueled by worries over a slowdown in the pace of Ivory Coast cocoa exports, which indicated a tightening of global supplies. Government data released recently showed that Ivory Coast farmers had shipped 1.75 million metric tonnes (MMT) of cocoa to ports for the current marketing year (October 1 to July 27). While this represents a 6.1 per cent increase from last year, it marks a deceleration from the much larger 35 per cent increase observed in December, indicating a slower pace of deliveries.
Adding to the bullish sentiment earlier in the week were concerns about dry weather across West Africa, a critical cocoa-producing region. According to the European Centre for Medium-Range Weather Forecasts, rainfall in both Ivory Coast and Ghana this season remains below the 30-year average. This, combined with consistently high temperatures, risks hurting cocoa pod development for the crucial main crop harvest, which typically commences in October.
Despite these supply-side concerns, the dominant bearish factor continues to be the stubbornly tepid global demand for chocolate. Last Tuesday, Swiss chocolate maker Lindt & Spruengli AG, a bellwether for the industry, lowered its margin guidance for the year, citing a larger-than-expected decline in first-half chocolate sales. Similarly, Barry Callebaut AG, another major chocolate manufacturer, reduced its sales volume guidance earlier this month for the second time in three months, blaming persistently high cocoa prices for curbing demand. The company now projects a decline in full-year sales volume and reported a significant 9.5 per cent drop in its sales volume for the March-May period, marking its largest quarterly decline in a decade.
The broader weakness in global cocoa demand has hammered prices in recent months, with NY cocoa sinking to an 8.5-month nearest-futures low and London cocoa slumping to a 17-month nearest-futures low last month. This persistent softness was illustrated by recent grinding data. The European Cocoa Association reported on July 17 that Q2 European cocoa grindings fell by a sharper-than-expected 7.2 per cent year-on-year to 331,762 MT. The Cocoa Association of Asia reported an even more substantial decline, with Q2 Asian cocoa grindings falling 16.3 per cent year-on-year to 176,644 MT, marking the smallest Q2 volume in eight years. While North American Q2 cocoa grindings also fell by 2.8 per cent year-on-year to 101,865 MT, this decline was less pronounced than those seen in Asia and Europe.
In a further bearish development, ICE-monitored cocoa inventories held in US ports reached a 10.5-month high of 2,368,141 bags last Tuesday. This build-up in stockpiles signals ample immediate supply, further alleviating some of the market’s recent anxieties regarding tight availability.
