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Cocoa Prices Mixed Amid Demand Concerns and Supply Issues

Cocoa prices feel pressure from weak demand signals as Mondelez reported disappointing Q1 sales, alongside supply challenges from poor weather. Short covering and some positive global cocoa demand data offer nuanced market perspectives.

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AI Rating:   5

Cocoa Market Overview: Recent fluctuations in cocoa prices have raised concerns for investors, particularly as Mondelez International disclosed weaker-than-expected Q1 sales. This situation hints at a potential decline in consumer demand for chocolate products, primarily as economic uncertainty looms and consumers are starting to cut back on snack purchases due to high chocolate prices.

Supply and Demand Dynamics: The report brings to light various factors impacting supply, including adverse weather conditions in West Africa. Farmers are facing challenges with strong winds affecting crops, specifically in Ivory Coast, while concerns about inadequate rainfall in Nigeria are leading to further supply constraints.

Interestingly, despite the bearish note on consumer demand, there are indications of improved global cocoa demand through Q1 data. Although North American and European cocoa grindings have experienced slight declines, they were less severe than anticipated, with figures showing a decrease of -2.5% and -3.7% year-over-year (y/y) against expectations of -5% declines. Thus, there is a regional resilience that should be noted.

Stockpiles and Harvest Forecasts: Following the recent rebound in cocoa inventories in U.S. ports, which increased to a 6-1/2 month high, fears regarding oversupply may arise. Additionally, projections indicate an upcoming surplus in global cocoa production for the upcoming seasons, which could create downward pressure on prices.

Another noteworthy development is the forecasted decline in the mid-crop cocoa harvest from Ivory Coast and Ghana. With estimates suggesting a drop in harvest from 440,000 MT to 400,000 MT, this tightening of supply amidst a backdrop of increasing demand might serve as a buffer for cocoa prices.

Nevertheless, considering these dynamics, the economic pressures anticipated from both consumer behavior and supply chain challenges must be closely monitored as they carry the potential to impact cocoa-related stocks and investments.

Stocks:  MDLZ