Cocoa Prices Rebound Amid Demand Concerns and Supply Factors

Cocoa prices see a bounce back as demand concerns grow. Major chocolate companies like Hershey and Mondelez indicate that high cocoa prices are impacting consumption. Industry analysts will need to monitor these trends closely.

Date: 26-02-2025

AI Rating: 5

Cocoa Price Recovery and Demand Impact

The recent report highlights both the rebound in cocoa prices and the underlying demand concerns affecting the market. While cocoa prices increased due to short-covering, the overall demand appears to be strained. Major chocolate manufacturers have expressed worries that elevated cocoa prices are impacting chocolate consumption, which could lead to further price increases and lower demand.

Diving into Key Factors

The quarterly grindings reports provide evidence that cocoa demand has decreased. In Q4, European cocoa grindings fell by -5.3% year-on-year, and Asian grindings saw a more modest decline of -0.5%. Even more concerning, North American grindings fell by -1.2%. These figures suggest declining consumption patterns amidst rising prices, particularly in key markets like North America.

Supply-Side Dynamics

Additionally, although the report mentions a supportive factor in the slow growth of cocoa exports from the Ivory Coast, it raises the question of sustainability. The pace for this marketing year has fallen from prior months, but this is nuanced by the context that the cumulative exports were still higher than the previous year. High inventory levels initially seen as bullish for prices have also been fluctuating.

Cocoa Deficit Insights

The ICCO's updated estimates indicate a global cocoa deficit for the 2023/24 year, now pegged at -478,000 MT, signaling potential long-term supply challenges. Coupled with a reduction in production estimates to 4.380 MMT, this may signal tighter availability in future markets, which could influence pricing trends upward.

Overall, while cocoa prices may currently rebound, fundamental issues regarding demand and rising end-product costs are noteworthy. Investors may want to closely monitor Hershey (HSY) and Mondelez (MDLZ) for potential impacts on earnings and stock performance as these issues evolve.

Stocks: HSY MDLZ