Cocoa Prices Drop Amid Rising Global Supplies and Inventory

Cocoa market sees sharp declines as global supplies increase. Cocoa prices closed lower on Monday due to an uptick in Nigerian exports and inventory levels, signaling potential supply gluts. Professional investors may need to reassess positions in cocoa-related stocks.

Date: 29-04-2025

AI Rating: 5

Market Overview: Cocoa prices on Monday fell significantly, with NY cocoa declining by 4.79% and London cocoa dropping by 3.08% following the announcement of larger global supplies. This increase in supply is attributed mainly to a notable 24% rise in Nigerian cocoa exports year-on-year, raising concerns about oversupply in the market.

Additionally, inventories of cocoa have seen a rebound, increasing from a 21-year low in January to a 6-1/2 month high. This is indicative of an increase in cocoa availability, which typically exerts downward pressure on prices. The government's data showed that, while cocoa exports from the Ivory Coast have seen a year-on-year increase of 12%, it notably decreased from the previous year's much larger rise.

Supply and Demand Dynamics: While there are concerns regarding the pace of current cocoa exports, recent data indicates that global cocoa demand remains resilient. Notably, Q1 cocoa grindings in North America, Europe, and Asia slightly outperformed expectations. The North American cocoa grindings fell just 2.5% compared to projections of a 5% decline, suggesting that demand may be stabilizing despite higher prices.

However, fears persist surrounding the upcoming mid-crop in Ivory Coast, where rainfall patterns have affected crop growth leading to reduced estimates. This could provide support for prices in the short term despite the backdrop of increased inventories. Additionally, potential impacts from global trade issues and tariffs have continued to pose challenges for cocoa supply and demand.

Future Predictions: The International Cocoa Organization's forecast of a global cocoa surplus beginning in 2024/25 raises further questions about the viability of current cocoa pricing. Nevertheless, forecasts of a supply drop from Ghana, another key producer, can mitigate some of the bearish sentiments, although it remains essential to monitor overall global production rates and weather conditions in these regions.

In conclusion, while current cocoa price levels are under pressure from increasing supply and inventories, the situation surrounding weather impacts and global demand health paints a mixed picture. Investors must remain vigilant to these dynamics as they could affect stock positions tied to cocoa and its derivatives.

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