Cocoa Prices See Volatility Amid Supply Concerns and Demand

Cocoa prices see slight gains as concerns arise over supply and demand. The market showed volatility due to a forecasted global cocoa surplus and warnings from major chocolate manufacturers about demand constraints.

Date: 27-03-2025

AI Rating: 4

Market Overview: Cocoa prices have recently experienced volatility, closing upward on Wednesday with May ICE NY cocoa rising by 0.61% and May ICE London cocoa increasing by 1.12%. This follows a period where prices have been on the defensive, dwindling to 4-1/4 month lows due to improving supply outlooks.

Earnings and Production: The International Cocoa Organization (ICCO) forecasted a significant surplus of 142,000 metric tons for 2024/25, representing the first surplus in four years. The forecast also indicates a +7.8% year-on-year increase in cocoa production to 4.84 million metric tons. These factors may pressure cocoa prices downwards.

Supply Levels: The recovery in cocoa inventories is observed with the ICE-monitored stocks held in U.S. ports rising from a 21-year low to a 4-3/4 month high. This rebound could further contribute to lower cocoa prices as more supply enters the market.

Demand Factors: Warnings from chocolate manufacturers like Hershey and Mondelez on high cocoa prices adversely affecting demand add to bearish sentiments. Mondelez indicated a potential downturn in chocolate demand, especially in North America, while Hershey disclosed that high prices are compelling recipe reformulations to substitute cocoa with alternative ingredients.

Ghana and Ivory Coast Influence: The decline in cocoa exports from the Ivory Coast provides limited downside support, despite increased shipments from October to March. Additionally, Ghana's adjusted harvest forecast negatively impacts future supply projections, with an estimated reduction in cocoa harvests.

Grindings Reports: The overall decline in cocoa demand is highlighted through Q4 grinding reports, with significant year-on-year drops in cocoa grindings across Europe and Asia, consolidating the notion of weakening demand.

Overall Market Sentiment: With the ICCO reporting a 2023/24 global cocoa deficit—the largest in 60 years—combined with declining grind numbers, the cocoa market is facing bearish pressure overall. These mixed signals may dictate future price movements, highlighting both opportunities and risks for investors.

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