Cocoa: Bearish demand, bullish supply

Cocoa prices continue to falter, sinking to 10-month lows against a backdrop of mixed fundamentals (Chart 1). West African production is sluggish, but the demand picture has been a disappointment.

On the consumption side, fourth-quarter grinding statistics showed lackluster demand. The North American grind was up 1% year-over-year, and the Asian grind was 2.8% higher. In Europe, however, the world’s largest grinding region, the grind was down 6.2%.

We have been touting the bullish virtues of the explosive move in butter prices in recent months. The butter ratio doubled from 1 times the London spot price to 2 (Chart 2).

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