Just noticed something interesting in the cocoa market this week. After that dip to multi-year lows earlier, cocoa price has been bouncing back pretty hard on supply jitters. The Iran situation is spooking traders because if the Strait of Hormuz closes, shipping costs explode, which basically kills cocoa export economics from West Africa. You're already seeing funds covering shorts like crazy - the latest COT report showed they're sitting on massive short positions, so any supply scare triggers a rally.

But here's the thing that's been weighing on cocoa price for months now: global supplies are actually bloated. ICCO just raised their surplus forecast to 75,000 MT for this season, and production is up 8.4% year-over-year. Ghana and Ivory Coast both slashed farmer payouts by 30-57%, which is basically admitting there's too much cocoa floating around. Even worse, chocolate makers are cutting volumes - Barry Callebaut reported a 22% drop in cocoa division sales because consumers won't pay these chocolate prices. Grinding reports across Europe, Asia, and North America all came in weak.

On the production side, yes Ivory Coast expects output to fall 10.8% next season, but Nigeria's exports are climbing and West Africa's growing conditions look solid for the mid-crop harvest starting in March. The real pressure on cocoa price is demand - people are just refusing to buy expensive chocolate. Inventories at ICE hit a 6.5-month high on Friday, which tells you everything about the supply-demand picture. Short-term rally looks like a dead cat bounce to me.