Cocoa Prices Surge Amid Anticipation of Buying Linked to Commodity Indexes

Cocoa Futures Surge on Index-Driven Buying

March contracts for ICE NY cocoa (CCH26) climbed by 2.06% today, gaining 122 points, while March ICE London cocoa #7 (CAH26) advanced 2.07%, up 88 points.

After hitting one-month lows on Wednesday, cocoa prices rebounded sharply, reaching their highest levels in a week. The rally is fueled by anticipated index-related purchases as commodity indexes undergo annual rebalancing. According to Peak Trading Research, this process could result in the acquisition of approximately 37,000 cocoa futures contracts—about 31% of total open interest.

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Market Drivers and Supply Updates

Earlier this week, cocoa prices dropped to their lowest point in a month due to favorable weather conditions in West Africa. The Tropical General Investments Group reported that improved growing conditions are expected to enhance the February-March cocoa harvest in both Ivory Coast and Ghana, with farmers noting larger and healthier pods compared to last year.

Mondelez, a major chocolate producer, recently indicated 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 harvest in Ivory Coast is underway, and growers are optimistic about the crop's quality.

Despite these positive harvest signals, cocoa prices remain supported by evidence of tighter supplies from Ivory Coast. Recent data shows that farmers there shipped 1.073 million metric tons (MMT) of cocoa to ports from October 1 to January 4, a 3.3% decrease from the same period last year. Ivory Coast continues to be the world’s leading cocoa producer.

Further price support comes from expectations that cocoa futures will be included in the Bloomberg Commodity Index (BCOM) this month. Citigroup estimates that this inclusion could attract up to $2 billion in NY cocoa futures purchases.

Declining cocoa inventories are also contributing to bullish sentiment. As of December 26, ICE-monitored cocoa stocks in US ports fell to a 9.75-month low of 1,626,105 bags.

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

Additional Factors Impacting the Cocoa Market

The European Parliament's decision on November 26 to postpone the implementation of the deforestation law by one year has kept cocoa supplies ample. The EUDR regulation, designed to address deforestation linked to imports of key commodities like soybeans and cocoa, will now allow continued imports from regions in Africa, Indonesia, and South America where deforestation is ongoing.

Weak demand is weighing on cocoa prices. The Cocoa Association of Asia reported a 17% year-over-year drop in Q3 cocoa grindings to 183,413 MT, the lowest third-quarter figure in nine years. Similarly, the European Cocoa Association noted a 4.8% decline in Q3 grindings to 337,353 MT, a ten-year low. While North American grindings rose by 3.2% to 112,784 MT, 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 an 11% drop in 2025/26 production to 305,000 MT, down from 344,000 MT projected for 2024/25. September cocoa exports from Nigeria remained steady year-over-year at 14,511 MT.

On May 30, the ICCO revised its 2023/24 global cocoa deficit to -494,000 MT, the largest shortfall in over six decades, citing a 12.9% year-over-year decrease in production to 4.368 MMT. However, the ICCO’s December 19 estimate projects a global surplus of 49,000 MT for 2024/25, marking the first surplus in four years, with production expected to rise by 7.4% to 4.69 MMT.