Quick Summary
- Cocoa prices experienced a significant downturn, with New York futures reaching a four-week low and London futures hitting a three-week low.
- This decline is attributed to expectations of a strong cocoa harvest in West Africa and weakened global demand, particularly in Asia and Europe.
- Despite supply concerns and potential fund short-covering, bearish factors currently outweigh bullish sentiment.
- Shrinking inventories and the inclusion of cocoa in the Bloomberg Commodity Index offer some support.
Cocoa Market Sees Sharp Sell-off
The cocoa market experienced a substantial decline on Tuesday. December ICE New York cocoa futures (CCZ25) closed down by $273, or 4.47%. Similarly, December ICE London cocoa #7 futures (CAZ25) saw a significant drop, closing down by $206, or 4.73%. This sell-off resulted in New York cocoa futures reaching a four-week low and London cocoa futures falling to a three-week low.
Factors Influencing Cocoa Prices
Cocoa prices had previously rallied to six-week highs just last week. However, a shift in market sentiment has led to a retreat. This recent downturn can be primarily linked to growing expectations of a robust cocoa harvest in West Africa. Farmers in the Ivory Coast have reported that cocoa trees are performing well, and recent dry weather has aided in the drying process of harvested beans. In Ghana, favorable weather conditions are contributing to the rapid development of cocoa pods.
Further bolstering these production hopes, chocolate manufacturer Mondelez noted that the latest cocoa pod count in West Africa is approximately 7% above the five-year average and is reported to be materially higher than the previous year’s crop. The harvesting of the Ivory Coast’s main crop has commenced, with farmers expressing optimism regarding the quality of the yields.
Weak Global Demand Pressures Cocoa Prices
Conversely, subdued global cocoa demand is acting as a significant bearish force on cocoa prices. The CEO of Hershey’s revealed on October 30th that chocolate sales during the recent Halloween season were disappointing. Considering Halloween accounts for nearly 18% of annual US candy sales, its underperformance signals potential weakness in consumer spending on confectionery.
Statistical data further supports the narrative of weakening demand. On October 17th, the Cocoa Association of Asia reported a 17% year-over-year decrease in third-quarter cocoa grindings, reaching 183,413 metric tons – the lowest for a third quarter in nine years. The European Cocoa Association followed with a report on October 16th, indicating that third-quarter European cocoa grindings fell by 4.8% year-over-year to 337,353 metric tons, marking a ten-year low for the period. While the National Confectioners Association reported a 3.2% rise in North American cocoa grindings for Q3, this increase is largely attributed to the inclusion of new reporting companies, potentially skewing the data. In related news, research firm Circana highlighted that North American sales volume for chocolate candy decreased by over 21% in the 13 weeks leading up to September 7th compared to the same period last year.
Shifting Supply Dynamics and Trade Flows
Signs of a slowdown in cocoa exports from the Ivory Coast, the world’s leading cocoa producer, are providing some limited support to prices. Government data released on Monday revealed that Ivory Coast farmers shipped 411,979 metric tons of cocoa to ports between October 1st and November 8th. This figure represents a 9% decrease compared to the 454,624 metric tons exported during the corresponding period in the previous marketing year.
⚡ An excessively short position held by funds in the London cocoa market could potentially fuel a short-covering rally. Last Friday’s Commitment of Traders (COT) report indicated that funds increased their net-short positions in London cocoa by 3,746 contracts in the week ending November 4th, bringing the total to 19,194 contracts – the highest level of short positions seen in over four years. Currently, there is no available data on positions in the New York cocoa market due to the ongoing closure of the US government.
Inclusion in Commodity Index and Inventory Levels
Last Tuesday, cocoa prices experienced a rally to six-week highs, partly driven by short-covering activity following the news on October 30th that cocoa would be included in the Bloomberg Commodity Index (BCOM) for the first time in two decades, effective January. With assets tracking the BCOM index totaling nearly $109 billion at the end of 2024, cocoa’s projected 1.7% weighting in the index could stimulate substantial inflows from passive funds that follow the index. Peak Trading Research LLC estimates that funds will need to purchase approximately $1.9 billion in cocoa futures over the next 80 days.
✅ Shrinking ICE cocoa inventories are also offering some support to cocoa prices. As of Tuesday, ICE-monitored cocoa inventories held in US ports fell to a seven-and-a-half-month low of 1,786,616 bags.
Regional Production and Global Deficits
A supportive factor for cocoa prices includes the projected lower cocoa production in Nigeria, the world’s fifth-largest cocoa producer. The Cocoa Association of Nigeria forecasts that Nigeria’s 2025/26 cocoa production will decline by 11% year-over-year to 305,000 metric tons, down from a projected 344,000 metric tons for the 2024/25 crop year. In related news, Nigeria reported that its September cocoa exports remained unchanged year-over-year at 14,511 metric tons.
📊 On May 30th, the International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit forecast to 494,000 metric tons, the largest deficit recorded in over 60 years. The ICCO stated that 2023/24 cocoa production decreased by 13.1% year-over-year to 4.380 million metric tons. Furthermore, the ICCO noted that the global cocoa stocks-to-grindings ratio for 2023/24 declined to a 46-year low of 27.0%. For the 2024/25 season, the ICCO estimates a global cocoa surplus of 142,000 metric tons, which would mark the first surplus in four years. The ICCO also projects that global cocoa production in 2024/25 will increase by 7.8% year-over-year to 4.84 million metric tons.
Expert Summary
The cocoa market is currently navigating a complex landscape marked by significant price drops driven by strong harvest expectations and weakening demand in key regions. While potential fund short-covering and reduced export volumes offer some minor support, the bearish sentiment stemming from ample supply prospects and sluggish consumption appears to be dominant.
