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Cocoa Prices Mixed as Quality Concerns and Inventory Issues Persist

Cocoa prices are showing volatility with mixed results as quality issues in the Ivory Coast mid-crop raise supply concerns. Professional investors should note these factors could impact stock performance in cocoa-related companies.

Date: 
AI Rating:   5
Market Overview
In the latest report, cocoa prices have recently shown a contrast in performance with ICE NY cocoa closing down and London cocoa holding steady. The sharp gains earlier in the week drew attention to quality concerns surrounding the Ivory Coast's mid-crop cocoa harvest. Reports indicate that cocoa processors have encountered rejectable quality issues affecting 5-6% of the mid-crop, a significant increase compared to 1% during the preceding main crop.

This raises notable **Supply Concerns** characterized by reduced quality impacting both export capabilities and inventory levels. While the mid-crop production estimate reflects a decrease to 400,000 MT this year (down 9% from last year), concerns around delayed rainfall may have contributed significantly to these issues.

On the demand front, however, cocoa prices are facing headwinds influenced by fears of declining consumer demand and potential tariff implications. Notably, major players like Barry Callebaut AG and Hershey Co. have lowered their sales forecasts, citing rising cocoa prices and added tariff costs as crucial factors that could discourage consumption.

In terms of **Growth Projections**, reports indicate a potential rebound in cocoa inventories, which has increased from a 21-year low. Such inventory growth could place downward pressure on prices despite supply concerns. Furthermore, the ICCO's projections suggest a global cocoa surplus of 142,000 MT for the upcoming 2024/25 period, marking a stark shift after years of deficits. However, the favorable press surrounding better-than-expected grindings in various regions slightly tempers these bearish sentiments.

Conclusion
From a professional investment standpoint, current market conditions suggest mixed indicators with supply quality affecting market stability against potential consumer demand decline. The interplay between inventory rebuilds and supply concerns indicates a complex landscape. Investors should closely monitor further developments, particularly regarding quality assessments from key producing regions and the evolving stance on tariffs affecting cocoa product pricing. Overall, there are elements both bullish and bearish affecting cocoa prices, making strategic insights essential for managing cocoa-linked investments.
Stocks:  HSY MDLZ