Cocoa Prices Rise Amid Trade War and Demand Concerns

Cocoa prices surged on short covering due to dollar weakness, despite fears of demand decline from rising tariffs. Recent harvest outlook for West Africa adds to volatility as inventory levels rise.

Date: 10-04-2025

AI Rating: 5

Price Movements and Influences
May ICE NY cocoa closed up 8.92% on Wednesday with London cocoa following suit. This sharp recovery from previous lows is attributed to short covering activities spurred by a weaker dollar. Nonetheless, concerns about escalating trade tensions are weighing heavily on cocoa prices, especially regarding consumer demand.

Harvest Concerns
Recent reports indicate that the mid-crop harvest in the Ivory Coast has faced significant setbacks due to adverse weather conditions. The mid-crop yield is now projected to be 400,000 MT, down 9% from last year's 440,000 MT, which may support price levels due to restrained supply amidst increasing export rates. However, the overall production outlook is becoming increasingly bearish with reports forecasting a global surplus of 142,000 MT for 2024/25.

Exports and Inventories
While recent data from the Ivory Coast showed cocoa exports rising 11% year-over-year, the pace of increase has slowed considerably from a previous 35% rise. This reduction could place further pressure on cocoa prices. Additionally, cocoa inventories in US ports have climbed to a 5.5-month high, again suggesting that supply may outstrip demand in the coming months.

Demand Dynamics
High cocoa prices are starting to dampen demand, which is also concerning for investors. Executives from major chocolate companies, such as Hershey and Mondelez, have mentioned declining consumption trends linked to the surging prices of cocoa. They reported potential reformulations of their products in response to the rising costs, which may adversely impact future sales volumes.

Investment in cocoa-related companies should carefully consider these dynamics. Although short-term price surges can offer opportunities, the longer-term outlook is clouded by potential demand decline due to external economic factors and internal supply adjustments.

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