Cocoa Demand Weakens, Prices Drop Amid Supply Surplus Concerns

Cocoa prices are declining due to weak demand signs, highlighted by a drop in processing figures. The falling demand, coupled with an anticipated surplus, raises concerns for chocolate companies. Investors should monitor the upcoming Q1 cocoa grinding reports closely.

Date: 15-04-2025

AI Rating: 4

Weak Cocoa Demand Observed
Recent data indicates a notable decrease in cocoa demand, with both Malaysia and Brazil reporting significant year-on-year declines in cocoa processing and grinding figures. This drop may lead to ongoing bearish pressure on cocoa prices, which contracted 3.1% and 3.82% respectively for NY and London cocoa on the latest trading day.

Concerns from Major Chocolate Producers
Executives from Hershey and Mondelez have expressed worries over the impact of rising cocoa prices on consumer demand for chocolate products. Tariffs that elevate cocoa prices alongside high market valuations may cause a significant slowdown in chocolate sales, which could further depress the cocoa market.

Impact from Increased Cocoa Supply
Expectations of a global cocoa surplus (142,000 MT) are projected for the upcoming 2024/25 season, driven by improved production outputs, particularly from West Africa. The International Cocoa Organization's forecast suggests that global cocoa production might climb by 7.8% year-over-year. This looming surplus can dampen cocoa prices in the near term.

Influence of Cocoa Inventory Levels
Recovering cocoa inventories have also contributed to price declines since reaching a 21-year low in January. The climb to 1,883,691 bags in U.S. ports, a significant increase, indicates a more favorable supply outlook that could further soften market prices.

Recent Harvests and Global Cocoa Market Dynamics
The upcoming mid-crop harvest in Ivory Coast, despite showing signs of weakness, is met with mixed reactions. While concerns over quality and quantity persist, recent export statistics reveal a modest increase in shipments. This slight rise could introduce volatility in the cocoa pricing dynamics.

Overall, the combination of weak demand forecasts, increased supply, and recovering inventory levels presents a challenging landscape for cocoa investors, prompting a cautious approach ahead of the upcoming Q1 cocoa grinding results.

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