Cocoa market seeks new balance between supply and demand

After a sharp price decline, some stability appears to be returning to the cocoa market. Prices recovered slightly in March and April compared to the low at the end of February. This does not change the fact that significant daily price volatility persists.Following record prices and extreme supply tightness, the cocoa market is now characterised by an oversupply. Record prices during a period of shortages have had a clear impact, triggering demand destruction. This combination is creating a fragile balance in the market.On the supply side, West Africa—and Ivory Coast in particular—remains the dominant factor. Weather conditions are favourable for the mid-crop, which is about to begin. Rainfall in the coming period will determine the eventual size of the harvest. For now, production prospects are favourable.On the demand side, the picture is less convincing. Processing figures (grindings) for the first quarter in Europe were disappointing. According to the European Cocoa Association (ECA), processing declined by 7.8% in the first quarter. This drop is larger than analysts had expected, who had anticipated a decline of around 6%.Processing is also under pressure in the United States. Although Asia shows a more positive trend, this is insufficient to offset weakness in the traditional core markets. Market participants expect that lower prices later this year may support a recovery in demand, but for now this is not yet visible.Barry Callebaut lowers profit outlookThis is underlined by results from major players such as Barry Callebaut. The world’s largest chocolate producer was forced last week to significantly lower its profit outlook due to declining selling prices and increasing competition. As a result, margins are under pressure. In addition, the company is facing logistical challenges and higher energy costs as a consequence of the war in Iran.