Cocoa Prices Face Pressure Amid Supply and Demand Concerns

Cocoa prices are under pressure as supply improves and demand weakens. Recent indicators point to rising inventories and a forecast of increased production, affecting market dynamics. Investors should closely monitor these trends for potential impacts on related stocks.

Date: 29-03-2025

AI Rating: 5

Cocoa Market Dynamics Overview
Cocoa prices have shown a recent uptick, with May ICE cocoa and London cocoa #7 closing higher. However, prices remain under pressure due to a host of factors including rising inventories and shifting global demand.

The International Cocoa Organization (ICCO) forecasts a global cocoa surplus for 2024/25, indicating a potential shift in market conditions. The expected increase in production by 7.8% year-on-year to 4.84 million metric tons (MMT) could lead to greater availability in the market, adversely affecting cocoa prices amid recovering inventories.

Furthermore, the growth in cocoa stocks, rebounding from a low of 1,263,493 bags to 1,806,361 bags, signals an improving supply scenario, which can be bearish on prices. Despite this, the upcoming mid-crop in the Ivory Coast poses some uncertainty, as an estimated drop in its size could provide some support to cocoa prices.

Demand Concerns
Executives from major chocolate manufacturers like Hershey and Mondelez have indicated that high cocoa prices are dampening demand. With chocolate consumption experiencing downturns, particularly in North America, there is a palpable market concern regarding future sales. This downward pressure on demand is critical for price stabilization and growth.

The recent cocoa grinding reports reflect these demand concerns, with Q4 European and Asian cocoa grindings indicating significant year-on-year declines, the lowest in four years. Such data illustrate a contraction in the industry, affecting overall market sentiment.

Conclusion
This combination of rising supply and weakening demand could lead to volatile market conditions for cocoa prices in both the short and medium term, which investors should heed as they evaluate their positions in related equities.

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