West Africa's Weather Woes Drive Up Cocoa Costs

Rising Cocoa Prices Amid Weather Concerns and Supply Constraints

Cocoa prices have seen a significant increase today, with the December ICE NY cocoa contract (CCZ25) rising by +214 (+2.88%) and the December ICE London cocoa #7 (CAZ25) climbing by +105 (+2.06%). This surge marks a 1.5-week high for New York cocoa, driven largely by concerns over weather conditions in West Africa, which is a major cocoa-producing region.

The Ivory Coast has experienced heavy rainfall that has disrupted farming activities, preventing farmers from accessing their cocoa fields and slowing the transportation of cocoa from plantations to ports. In addition, dry conditions in Ghana and Nigeria have led to crop damage, as cocoa pods have withered due to a lack of precipitation. These factors are contributing to the upward trend in cocoa prices.

In London, gains in cocoa prices were more modest, as the British pound strengthened to a 2-month high. A stronger pound makes cocoa less attractive for buyers using sterling, which can limit price increases in that market.

Inventory Levels and Export Trends

Tighter cocoa inventories are also supporting current price levels. According to ICE data, cocoa inventories held in US ports fell to a 4.25-month low of 2,092,823 bags last Friday. This reduction in available supply is adding pressure on prices.

The slowdown in cocoa exports from the Ivory Coast is another factor boosting prices. Recent government data shows that farmers shipped 1.82 MMT of cocoa to ports this marketing year, up 5.8% compared to last year but down from the 35% increase recorded in December. This slower pace of exports is seen as positive for cocoa prices.

However, the market has not been entirely bullish. Earlier this week, cocoa prices fell to a 1.75-month low due to expectations of increased supply and weakening demand. Over the past four weeks, concerns about high cocoa prices and potential tariffs have weighed on chocolate demand. For example, Lindt & Sprüngli AG reduced its margin guidance for the year in July, citing a larger-than-expected drop in first-half chocolate sales. Similarly, Barry Callebaut AG lowered its sales volume guidance for the second time in three months, attributing the decline to persistently high cocoa prices.

Crop Projections and Demand Outlook

Despite these challenges, there are signs of optimism regarding this year's cocoa harvest in West Africa. Mondelez recently reported that the latest cocoa pod count in the region is 7% above the five-year average and significantly higher than last year's crop. This suggests that production could be strong if weather conditions remain favorable.

Earlier this month, cocoa prices rose to two-month highs due to concerns about cold and dry weather affecting cocoa plants in the Ivory Coast and the spread of black pod disease in Ghana and Nigeria. The Commodity Weather Group noted that the past 60 days were the driest on record since 1979, raising fears about the impact on the main crop harvest, which begins in October.

Quality concerns related to the Ivory Coast’s mid-crop cocoa, currently being harvested through September, are also supporting prices. Rabobank attributed the poor quality of the mid-crop to late-arriving rain, which limited crop growth. The mid-crop, which is smaller than the main annual harvest, is expected to be 400,000 MT this year—down 9% from last year’s 440,000 MT.

Nigeria, the world’s fifth-largest cocoa producer, is also experiencing lower output. The Nigerian Cocoa Association projects a 11% year-over-year decline in 2025/26 cocoa production to 305,000 MT from 344,000 MT in 2024/25. However, June cocoa exports rose slightly by 0.9% to 14,597 MT.

Global Demand Weakness

Weak global demand remains a bearish factor for cocoa prices. The European Cocoa Association reported a 7.2% year-over-year decline in Q2 cocoa grindings to 331,762 MT, while the Cocoa Association of Asia saw a 16.3% drop to 176,644 MT—the smallest Q2 amount in eight years. North American cocoa grindings fell by 2.8% to 101,865 MT.

On the other hand, Ghana is expected to see an 8.3% increase in cocoa production for the 2025/26 crop, reaching 650,000 MT from 600,000 MT in the previous season. As the world’s second-largest cocoa producer, Ghana’s higher output could put downward pressure on prices.

Long-Term Outlook and Market Sentiment

The International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit to -494,000 MT, the largest in over 60 years. This was due to a 13.1% year-over-year drop in cocoa production to 4.380 MMT. The stocks-to-grindings ratio fell to a 46-year low of 27.0%. For 2024/25, the ICCO forecasted a global surplus of 142,000 MT, marking the first surplus in four years.

As the market continues to balance supply and demand factors, cocoa prices are likely to remain volatile. Investors and traders are closely watching weather patterns, export trends, and global demand signals to determine the next direction of the market.