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Cocoa Prices Surge Amid Quality Concerns and Supply Issues

Cocoa prices are on the rise, fueled by quality concerns and supply dynamics. Processors are struggling with poor mid-crop quality from the Ivory Coast while Ghana's production forecast also declines. This shift may have broader implications for companies relying on cocoa.

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Cocoa Price Dynamics
Cocoa prices have seen significant upward movement, with NY cocoa reaching a three-month high and London cocoa climbing to a two-and-a-half-month high. This surge has been driven by various factors including concerns over the quality of the Ivory Coast cocoa mid-crop, which has seen a marked increase in rejected shipments.

Approximately 5% to 6% of the mid-crop cocoa has been reported as poor quality, compared to only 1% during the main crop. This implies a direct impact on supply and can lead to increased prices if demand remains constant while supply diminishes.

Supply Concerns Weighing on the Market
Supply issues are further compounded by the reduction in mid-crop harvest estimates to 400,000 MT, representing a 9% drop from last year. While exports from Ivory Coast have increased, they are still not at levels seen in previous months, indicating a tightening supply chain.

Additionally, as cocoa inventory levels in US ports rebound from a 21-year low, this could apply downward pressure on prices. However, it is important to consider that a rebound in inventories generally indicates a longer-term supply solution rather than an immediate one.

Consumer Demand Concerns
There are growing concerns around consumer demand for cocoa products, primarily influenced by high cocoa prices and impending tariff costs. Major chocolate manufacturers like Hershey Co. have already reported a 14% decline in Q1 sales due to these pricing pressures. The anticipated tariff-related costs further complicate this situation, potentially dampening consumer appetite for chocolate products. Mondelez International has also reported weaker-than-expected sales results, indicating that consumer cutbacks are likely to persist in the context of economic uncertainty.

Global Cocoa Demand
On a more positive note, there was better-than-expected global cocoa demand with decline rates in grindings being smaller than anticipated across North America, Europe, and Asia. Combined with expectations for a potential global surplus in 2024/25, this indicates a complex yet evolving market landscape.

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