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Cocoa Prices Decline Amid Supply Recovery and Demand Concerns

Cocoa prices fell as stronger dollar triggered liquidation. Inventory recovery and concerns about global demand raise negative sentiment in cocoa futures. Despite a slight increase in cocoa exports, the market faces pressure from rising supply forecasts and high consumer prices.

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AI Rating:   5

Market Overview
Cocoa prices recently experienced a decline, with May ICE NY cocoa closing down 2.21%. Several factors are influencing this downward trend, particularly a stronger dollar leading to liquidation in cocoa futures. The recovery in cocoa inventories, rebounding from a 21-year low, has created a bearish sentiment for cocoa prices.

Supply Dynamics
Recent reports indicate that cocoa inventories held in US ports have reached a six-month high. This increase in inventory levels may signal an oversupply in the market, which usually places downward pressure on prices. Additionally, the International Cocoa Organization (ICCO) has forecasted a significant surplus for the 2024/25 cocoa production year, predicted to be 142,000 MT, further exacerbating the supply situation.

Concerns Regarding Demand
Despite a slight positive carryover from better-than-expected global cocoa demand figures, there are growing concerns from chocolate manufacturers regarding high cocoa prices leading to reduced consumption. Executives from companies such as Hershey and Mondelez have openly acknowledged the diminishing demand for cocoa and chocolate products. Mondelez specifically highlighted a trend in declining cocoa consumption in North America, which might lead to further difficulties for cocoa prices.

Future Implications
The combination of improving supply forecasts and increasing consumer prices undoubtedly weighs on cocoa prices. Companies like Barry Callebaut AG have already adjusted their annual sales guidance due to these pressures. Given the market conditions, professional investors should be cautious in their outlook on cocoa-related stocks, aware of the potential for continued price declines if demand doesn’t pick up or if inventory levels remain high.

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