Just noticed cocoa futures are bouncing today - May NY cocoa up about 1.5% and London cocoa futures also climbing on similar gains. The dollar weakness is triggering some short covering, but honestly the bigger story is the supply situation getting messy.

So cocoa got hammered Monday after ICCO basically said there's going to be a 75,000 MT surplus this year instead of the 49,000 MT they predicted before. First surplus in four years, which explains why prices tanked to 3-year lows. London cocoa futures fell hard that day too. But here's where it gets interesting - the supply picture is actually complicated.

Yes, global stocks are up and production is climbing. StoneX is forecasting even bigger surpluses for next year. And demand is clearly weak, which is brutal. Barry Callebaut reported a 22% drop in cocoa sales volume last quarter because chocolate is just too expensive right now. European grindings fell 8.3% year-over-year, worst Q4 in 12 years.

But the Ivory Coast and Ghana, which produce over half the world's cocoa, just cut farmer payments by massive amounts - Ghana cut 30%, Ivory Coast cutting 57% for the mid-crop starting in March. That's going to squeeze supply at the farm level. Plus shipping costs are spiking because of the geopolitical situation, and Ivory Coast cocoa deliveries to ports are actually down 3.6% year-over-year.

London cocoa futures might see some support if these shipping headwinds persist, but the demand destruction is real. Consumers are just not buying chocolate at these prices. That's the bigger pressure than anything else right now. The surplus is coming, and it's going to keep weighing on prices until demand picks up.