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Cocoa Prices Facing Pressure as Demand Declines

Cocoa prices are under pressure as analysts report declining demand. Experts warn high cocoa prices could further slow consumption, prompting reformulations by major chocolate producers. This dynamic could significantly impact cocoa-related stock performance.

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AI Rating:   4

Cocoa Price Trends and Factors

Recent market activity indicates that cocoa prices are experiencing upward movements, with May ICE NY cocoa and May ICE London cocoa futures closing higher. This rise is largely due to a weakening dollar index that has sparked short covering. However, it is essential to consider the bearish trends influencing cocoa prices.

The International Cocoa Organization (ICCO) has forecasted a global cocoa surplus for 2024/25, marking a significant shift from the previous years of deficits. The forecast highlights a projected increase in global cocoa production of 7.8% year-on-year, reaching 4.84 million metric tons (MMT). Conversely, this surplus could exert downward pressure on cocoa prices as supply improves.

Additionally, recovering cocoa inventories are contributing to bearish market sentiment. Following a drop to a 21-year low, U.S. cocoa inventories monitored by ICE have risen significantly, reaching a 4.5-month high. While this increase in inventories suggests a better supply outlook, it contrasts with the ongoing demand concerns.

Concern about cocoa demand is underscored by recent warnings from major chocolate companies like Hershey and Mondelez. Executives have noted that high cocoa prices are adversely affecting demand, with indications of a slowdown in cocoa consumption in key markets like North America. This dynamic is reinforced by declining cocoa grindings, reflective of lower demand. The European Cocoa Association noted a notable drop in Q4 cocoa grindings, further highlighting the potential for a sustained negative impact on cocoa-related businesses.

Moreover, the ICCO reported a historic global cocoa deficit for 2023/24 and a significant decline in cocoa production. These factors will likely complicate market predictions, as tightening supplies from Ghana, the world's second-largest cocoa producer, may offer some price support but are currently counteracted by the overall bearish outlook concerning demand.

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