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Cocoa Markets Experience Fluctuation Amid Demand Concerns

Recent cocoa prices have risen on slight demand improvements; however, upcoming supply forecasts and consumer concerns about high cocoa prices may weigh future performance. Cocoa prices saw a 5.32% uptick on Monday amid better-than-expected global demand data.

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The recent reports on cocoa markets indicate a complex interplay between demand and supply factors that professional investors should closely observe. Cocoa prices recently increased by 5.32%, reaching a two-week high thanks to better-than-expected global cocoa demand. While Q1 North American cocoa grindings fell by only -2.5% year-on-year versus expectations of a -5% drop, data from Europe and Asia showed similar trends, where declines were less steep than anticipated. These figures suggest slightly stronger demand, which may initially lend support to cocoa prices. However, the underlying concerns regarding supply levels and consumer demand are critical to note.

Supply Factors: The International Cocoa Organization (ICCO) has forecasted a global cocoa surplus of 142,000 MT for the 2024/25 season, the first surplus in four years. This is likely to exert downward pressure on cocoa prices once realized. Moreover, cocoa inventory levels held in US ports have increased significantly to a 6-month high, countering any short-term price increases seen due to demand signals.

Additionally, data showing a surprising jump in Nigerian cocoa exports (+27% year-on-year) could signal improving global supply that may further dampen cocoa prices in the near term.

Demand Concerns: On the demand side, high cocoa prices have significantly affected purchasing behaviors among major chocolate makers, including Hershey and Mondelez. Both companies have cited concerns regarding declining cocoa consumption and have indicated potential price increases of chocolate products, which could suppress overall demand. The mix of warnings from these industry leaders underscores the risk that high cocoa prices present to future sales figures, potentially increasing the likelihood of lower demand in key markets.

The disconnection between supply improvements and demand pressures presents a mixed outlook for investors. While pricing may enjoy temporary boosts from sentiment shifts, structural issues suggest caution. Investors may benefit from monitoring future reports closely, especially those focusing on cocoa supply and consumer trends.
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