Cocoa prices have experienced a notable decline, with London cocoa falling nearly 11% and reaching its lowest level since November. This drop is attributed to expectations of a supply surplus following three seasons of deficit.
The International Cocoa Organization forecasts a global supply surplus of 142,000 tonnes for the 2024/25 season, driven by increased production and reduced demand due to higher prices. Additionally, Australia’s Bureau of Agricultural and Resource Economics and Sciences states that the winter wheat harvest for 2024/25 rose by 31% year on year to 34.1 million tonnes, benefiting from significant increases in New South Wales and Western Australia.
Shift In Cocoa Market Sentiment
The sharp decline in London cocoa prices reflects a shift in sentiment following concerns over prolonged supply shortages. After three consecutive years of deficit, markets are now responding to projections of surplus, which has led to a sell-off. The International Cocoa Organization estimates the surplus to reach 142,000 tonnes in the upcoming season, suggesting a fundamental change in supply dynamics.
Hedge funds and other market participants who had previously positioned for scarcity may be forced to adjust their strategies as expectations realign. If the projected surplus materialises, it would ease pressure on buyers, potentially leading to a period of lower volatility. However, production forecasts are never guaranteed—weather, pests, and geopolitical factors remain unpredictable.
Meanwhile, Australia’s wheat output has surged, buoyed by optimal growing conditions in key regions such as New South Wales and Western Australia. A 31% jump in production means global wheat supplies will be bolstered, affecting pricing and trade flows. The expansion in supply could temper upward pressure on global grain markets, particularly if demand growth fails to match output gains.
Impact On Global Trade
Looking ahead, traders need to monitor how European and American buyers react to lower cocoa prices. A price drop of this scale could stimulate demand recovery, but consumer behaviour has been sluggish in previous periods of elevated costs. Watching for shifts in purchasing patterns from major chocolate producers will offer insights into whether this decline results in stronger buying activity or if industry players remain cautious.
Likewise, wheat traders will want to assess global export trends. A stronger Australian harvest introduces fresh competition for other wheat-exporting nations, potentially squeezing sellers reliant on overseas demand. Whether this surplus affects pricing hinges on how importers, particularly in Asia and the Middle East, decide to allocate future purchases.
With both cocoa and wheat markets adjusting to newfound supply increases, pricing strategies will need to reflect changing sentiment. Those positioned on the wrong side of these moves may face pressure, while those who time their entries correctly could capitalise on shifting conditions. Monitoring production reports and tracking inventory data will be key to navigating the weeks ahead.
