The market is reducing the supply risk premium
Just a week ago, cocoa prices were trading at their highest levels in around 3.5 months. The recent pressure emerged after reports suggested that Ivory Coast’s cocoa harvest could reach between 2.1 and 2.2 million tons, compared to previous expectations near 1.8 million tons.
Supply from Ivory Coast is increasing
Exporters indicate that cocoa arrivals at ports in Ivory Coast have risen by 1.3% since the start of the season compared to the same period last year. This suggests that supply conditions may be less tight than the market had previously assumed. At the same time, concerns remain over unsold cocoa inventories within the country.
Rising tensions among farmers
Last week, Ivory Coast’s cocoa regulator sent officials to the central-eastern regions of the country following protests from farmers linked to growing stockpiles of unsold cocoa. The market interprets this as a sign that part of the available supply may struggle to find buyers at current price levels.
Demand remains relatively resilient
Part of the downside has been limited by processing data. Cocoa grindings in Ivory Coast rose 22% YoY in April, according to GEPEX data. This suggests that despite the recent correction, global demand for cocoa and chocolate products remains relatively resilient.
The cocoa market remains highly volatile following the historic rally seen over recent months, with investors reacting strongly to every new supply-related development coming from West Africa. More recently, US dollar weakness triggered aggressive short-covering activity by hedge funds visible in the latest COT data. However, as the current cooling of the trend shows, the rebound is far from straightforward, and any broader price stabilization may still take considerable time.
Source: xStation5
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