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Cocoa Prices Surge Amid Supply Concerns and Demand Issues

Cocoa prices soared recently, closing up over 4%, driven by export concerns in the Ivory Coast. However, chocolate makers like Hershey and Mondelez warn that high prices might reduce demand.

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AI Rating:   5
Overview of Cocoa Market Movement
Cocoa prices experienced a notable surge, closing up +314 (+4.04%) for May ICE NY cocoa and +243 (+4.00%) for May ICE London cocoa. This uptick is attributed to concerns regarding slowing cocoa exports from the Ivory Coast, prompting short covering in cocoa futures. Despite a 12% increase in shipments this year, the pace has slowed considerably from December's 35% rise.

Implications of Supply Forecasts
The International Cocoa Organization (ICCO) has forecasted a global cocoa surplus for 2024/25, predicting a production increase of +7.8% year-on-year, which is likely to dampen prices in the long term. Additionally, the increase in cocoa inventories held in US ports from a 21-year low to a 4-1/2 month high signals ample supply, further contributing to a bearish outlook.

Demand Side Concerns
On the demand side, executives from chocolate manufacturers Hershey and Mondelez raised alarms about high cocoa prices leading to reduced demand. According to Mondelez's CFO, there are indications of decreasing cocoa consumption in regions like North America. This sentiment is echoed by recent quarterly grinding reports showing significant downturns in both European and Asian cocoa grindings, indicating potential waning demand.

Impact of External Factors
Exacerbating the situation, Nigeria's cocoa exports surged by +27% year-on-year, further contributing to supply availability. Although there are concerns regarding the upcoming mid-crop in the Ivory Coast, which is projected to be -9% lower than last year, the overall bearish trends in supply and demand could hinder cocoa price sustainability, despite occasional upward movements due to specific crop concerns.

In summary, while cocoa prices have recently rallied, the underlying factors, including forecasted surpluses, past demand reductions, and increased global competition in cocoa supply, paint a challenging picture for future price stability.
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