Dollar Gains Trigger Long Position Liquidations in Cocoa Futures

Cocoa Futures Retreat as Dollar Strengthens

March contracts for ICE NY cocoa (CCH26) have fallen by 1.97% today, while March ICE London cocoa #7 (CAH26) is down 1.49%.

After Monday’s significant rally, cocoa prices are pulling back, influenced by a stronger U.S. dollar, which has triggered profit-taking and long liquidation in the cocoa market.

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Supply and Demand Factors Impacting Cocoa

Monday’s surge in cocoa prices was driven by reports of reduced shipments from the Ivory Coast, the world’s largest cocoa producer. Data shows that from October 1 to January 4, farmers in the Ivory Coast delivered 1.073 million metric tons (MMT) of cocoa to ports, a 3.3% decrease compared to 1.11 MMT during the same period last year.

Expectations of increased index-related buying are also supporting cocoa prices, as cocoa futures are now included in the Bloomberg Commodity Index (BCOM) starting this month. Citigroup estimates that this change could attract up to $2 billion in purchases of NY cocoa futures.

Last Friday, cocoa prices touched a one-week low due to favorable weather in West Africa. The Tropical General Investments Group noted that improved growing conditions in the region are likely to enhance the February-March cocoa harvest in both the Ivory Coast and Ghana, with farmers observing larger and healthier pods compared to last year.

Mondelez, a major chocolate manufacturer, recently reported that the latest cocoa pod count in West Africa is 7% above the five-year average and significantly higher than last year’s figures. The main crop harvest in the Ivory Coast has commenced, and local farmers are optimistic about the crop’s quality.

Additional support for cocoa prices comes from declining ICE-monitored cocoa inventories in U.S. ports, which dropped to a 9.5-month low of 1,626,105 bags as of December 26.

The outlook for global cocoa supply remains tight. On November 28, the International Cocoa Organization (ICCO) reduced its global cocoa surplus forecast for 2024/25 to 49,000 MT, down from 142,000 MT. The ICCO also lowered its global production estimate for 2024/25 to 4.69 MMT from the previous 4.84 MMT. Similarly, Rabobank recently revised its 2025/26 global cocoa surplus projection to 250,000 MT, down from a prior estimate of 328,000 MT.

Additional Market Influences

The European Parliament’s decision on November 26 to postpone the implementation of the deforestation law by one year has eased supply concerns, allowing continued imports of cocoa and other agricultural products from regions affected by deforestation, such as parts of Africa, Indonesia, and South America. The EU’s EUDR regulation is intended to address deforestation linked to key commodities, including cocoa and soybeans.

Sluggish global demand is weighing on cocoa prices. The Cocoa Association of Asia reported that third-quarter cocoa grindings in Asia dropped 17% year-over-year to 183,413 MT, marking the lowest Q3 grindings in nine years. In Europe, third-quarter grindings fell 4.8% year-over-year to 337,353 MT, the weakest third-quarter result in a decade. North American grindings rose 3.2% year-over-year to 112,784 MT, though this increase was influenced by the addition of new reporting companies.

On the supply side, Nigeria, the world’s fifth-largest cocoa producer, is expected to see a decline in output. The Cocoa Association of Nigeria forecasts that cocoa production for the 2025/26 season will decrease by 11% year-over-year to 305,000 MT, compared to a projected 344,000 MT for 2024/25. Meanwhile, Nigeria’s cocoa exports in September remained steady at 14,511 MT, unchanged from the previous year.

On May 30, the ICCO revised its estimate for the 2023/24 global cocoa deficit to -494,000 MT, the largest shortfall in over six decades, citing a 12.9% year-over-year drop in production to 4.368 MMT. However, the ICCO projects a return to surplus in 2024/25, with a forecasted global surplus of 49,000 MT and a 7.4% year-over-year increase in production to 4.69 MMT.