Cocoa just had a solid rally today - May NY contracts up over 5%, hitting 1.5-week highs. London cocoa also popped around 4.7%. Traders are suddenly worried about supply disruptions from the Iran situation, thinking the Strait of Hormuz closure could mess with shipping costs and limit cocoa exports. That's enough to spark some short covering in the futures.

What's interesting is the price of cocoa has been under pressure for weeks. Just last Friday, NY cocoa hit a 2.75-year low because global supplies are actually pretty abundant and demand is soft. The ICCO just raised its 2024/25 surplus forecast to 75,000 MT (up from 49,000 MT projected back in November), marking the first surplus in four years. Production is expected to jump 8.4% year-over-year to 4.7 million metric tons.

On the demand side, things look weak. Barry Callebaut reported a 22% drop in cocoa division sales volume for Q4, saying consumers are hitting resistance on chocolate prices. European cocoa grindings fell 8.3% year-over-year in Q4 - the worst quarter in 12 years. Asian and North American grindings also came in soft. So even though the price of cocoa bounced today on geopolitical jitters, the underlying story is still oversupply and weak buying interest.

West Africa's looking good for yields too - favorable conditions there should boost the mid-crop harvest starting in March. Ghana and Ivory Coast already cut farmer payouts (Ghana by 30%, Ivory Coast by 57%), which suggests they're trying to manage the supply glut. Nigeria's also exporting more cocoa, up 17% year-over-year in December shipments. The price of cocoa probably needs something more structural to shift, not just a temporary geopolitical scare. Unless the Strait situation gets worse, this rally might be short-lived.