Citi expects cocoa trading to stabilize in a range between $9,000 to $10,000 per metric ton over the next three to four weeks.

Beyond that, analysts at the Wall Street bank said in a research note out on Wednesday that it sees “two-way financial market risks” in the second half the year — and that the May to June period “could represent a turning point in the cocoa bull cycle.”

Citi said cocoa grindings, which result from bean processing and are a measure of demand, will be one key factor likely to determine whether prices have any further upside.

Citi said a significant contraction in first-quarter grindings data and a drop in origin processing might suffice for New York and London cocoa markets to unwind by up to 25% to the $7,000 to $7,500 range.

“But if cocoa grindings only marginally subside (as was the case in 4Q’23) and industry statements imply limited consumer pushback, then traders could quickly target $11,000-12,000/t,” analysts at the bank said.

Overall, Citi says it remains “mildly bearish” on cocoa prices through to year-end and more so in the 2025 calendar year.

Difficult weather conditions and disease have affected production in West Africa, which supplies about 70% of the world’s cocoa. The two largest producers, Ivory Coast and Ghana, were recently hit by a combination of heavy rain, dry heat and disease.

El Niño-related dryness in much of Southeast Asia, India, Australia and parts of Africa has supported a price rally for soft commodities such as sugar, coffee and cocoa in recent months, the Netherlands-based Rabobank said in its annual outlook for 2024.

The El Niño phenomenon, which returned last year, is a naturally occurring climate pattern that takes place when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. It can pave the way to more storms and droughts.

In its outlook for coffee, Citi said prices could rally in both the short and medium term.

Arabica coffee futures with May delivery climbed above the key barrier of $2 per pound on Wednesday, notching a new high for the year. The contract was last seen trading 1.8% higher at $2.07 on Thursday.

“The current move can largely be attributed to a heat wave in Vietnam affecting Robusta coffee production and as a result, providing carryover support for premium Arabica beans,” Aakash Doshi, senior commodities strategist at Citi, said in a research note published Thursday.

Citi said recent price action had exceeded its short-term target of $1.85 and the team was now poised for a near-term rally up to between $2.1 and $2.2 on the back of adverse weather conditions and further financial inflows, among other market signals.

The bank said that it expects Arabica coffee futures to trade in a range between $1.88 to $2.15 through the 2024 calendar year, adding that it is poised increase its projections further if the physical outlook tightens.

— CNBC’s Michael Bloom, Spencer Kimball & Fred Imbert contributed to this report.