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Cocoa Prices Decline Amid Supply Surplus and Demand Concerns

Cocoa prices are falling due to an expected global surplus and declining demand. The International Cocoa Organization forecasts a surplus in 2024/25, influencing stock prices negatively. Supply from Nigeria and lower consumption warnings from Hershey and Mondelez raise further concerns.

Date: 
AI Rating:   5
Impact on Cocoa Prices and Related Companies
Cocoa prices are currently experiencing a downturn, driven primarily by forecasts from the International Cocoa Organization (ICCO) predicting a global surplus of 142,000 MT for 2024/25. This predicted surplus marks the first of its kind in four years, which may significantly lower cocoa prices and thus impact profitability for chocolate manufacturers, including those in the S&P 500 such as Hershey (HSY) and Mondelez (MDLZ).

The report indicates a restructuring in how cocoa is utilized in products due to high prices. Hershey has had to reformulate recipes, and Mondelez has expressed concerns over slowing chocolate consumption. If these trends continue, they may face pressure on future earnings reports, affecting their stock prices negatively. Furthermore, the quarterly grinding reports show that cocoa grindings have significantly declined, suggesting that demand may not keep pace with production, which could lead to excess inventory and price drops.

Supply Factors
In addition, the situation for cocoa supply is evolving. While Nigeria's cocoa exports have risen, there are reports of declining shipments from the Ivory Coast. However, overall tight global cocoa inventories may provide some support for cocoa prices. The ICCO also highlighted a considerable cocoa deficit for the current harvest year, which has been the largest deficit in over 60 years, signaling potential future volatility in cocoa prices. Nevertheless, current favorable supply forecasts could outweigh these concerns in the shorter term.

Potential Ratings
Considering the mixed signals in the report, it can be concluded that while there are bearish elements such as increased supply and demand concerns, there are also factors that may help stabilize cocoa prices like the upcoming deficits. Given these insights, the impact on the related stocks could be negative, leading to an overall rating of 5 for the report.
Stocks:  HSY MDLZ