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Cocoa Prices Decline Amid Inventory Recovery and Demand Woes

Cocoa prices faced declines due to inventory recoveries and demand issues. The market shows signs of pressure as producers warn of high input costs affecting sales. Investors should be cautious as these trends could impact related stocks.

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AI Rating:   5
**Market Overview:** Cocoa prices have exhibited moderate losses recently, mainly influenced by increased inventories and a strong British pound undermining cocoa priced in sterling. The recent data shows a significant recovery in ICE-monitored cocoa inventories in US ports, climbing to a 3-1/4 month high, which may lead to further downward pressure on prices. **Supply Dynamics:** The International Cocoa Organization (ICCO) has reported a forecast for a global cocoa surplus of 142,000 MT for the 2024/25 season, marking the first surplus in four years with production expected to increase by 7.8% year-on-year. However, the report mentions that while cocoa exports from Ivory Coast are up by 15%, the pace of growth has slowed down significantly from earlier months. Conversely, Nigeria's cocoa exports have shown a remarkable increase of 27% year-on-year, indicating an increase in competitive supply. **Demand Concerns:** A significant aspect weighing on cocoa prices is the declining demand, as highlighted by executives from major chocolate manufacturers like Hershey and Mondelez. The impact of high cocoa prices on chocolate products has been palpable, with both companies warning about a potential slowdown in demand. For instance, Mondelez cited a slowdown in cocoa consumption and hinted at sharply higher chocolate prices potentially limiting demand. As a result, quarterly reports from the European, Asian, and North American markets have shown declines in cocoa grinding, signaling decreased consumption levels, which are critical indicators of demand in the chocolate sector. **Global Cocoa Deficit and Production Declines:** Adding to the market's concerns, the ICCO announced a cocoa deficit of -441,000 MT for 2023/24, marking the largest deficit in over 60 years, largely attributed to a 13.1% decline in production. This contrasts with the supportive news regarding reduced harvest forecasts from Ghana and the increased control on exports from Ivory Coast, which may provide some buffer against the oversupply but is not likely to alleviate price pressure significantly. Overall, the combination of recovering inventories, declining demand, and increasing competitive supply trends may lead to additional volatility in cocoa-related equities, necessitating caution from investors in the sector.
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