Just caught cocoa futures rallying today with May NY up 46 points and London H26.9 gaining 32 points. Dollar weakness is triggering some short covering, but honestly the bigger picture is still pretty bearish underneath. Monday was brutal - we hit new lows after ICCO basically shocked everyone by raising their 2024/25 surplus forecast to 75,000 MT. That's the first surplus in four years, and it completely flipped the narrative from the November estimate of +49,000 MT. Global production is projected to jump 8.4% year-over-year to 4.7 MMT too.

The supply situation is just overwhelming right now. ICE inventories hit a 6.5-month high of 2.2 million bags, and both Ivory Coast and Ghana are cutting farmer payments - Ghana by nearly 30%, Ivory Coast by 57% starting in March. Growing conditions in West Africa are looking solid, which means the mid-crop harvest coming in March could be substantial. Even with shipping costs climbing due to geopolitical tensions, the demand side is getting hammered. Barry Callebaut reported a 22% drop in cocoa division sales volume last quarter, and European grindings fell 8.3% year-over-year in Q4 - the worst Q4 in 12 years. Asian grindings also slipped 4.8% y/y. Consumers are just refusing to pay chocolate prices at these levels.

Nigeria is also ramping up exports, up 17% year-over-year to 54,799 MT in December, even though their projected production for 2025/26 is expected to fall 11%. The Ivory Coast is forecasting a 10.8% production decline for next season too, but that's not enough to offset the current glut. We're in a seven-week downtrend here, and even with today's bounce, the fundamentals still look weak. Rabobank recently cut their surplus estimate to 250,000 MT, but that's still a pretty significant surplus scenario.