Cocoa Industries Face Pressure as Currency Fluctuations Trigger Position Unwinding

Cocoa futures markets are experiencing downward momentum today, reversing gains from the previous trading session. The March contract on ICE New York (CCH26) has declined 184 points to -2.95%, while the March London cocoa futures (CAH26) dropped 132 points, also recording a -2.94% loss. The primary catalyst behind this retreat stems from a strengthening dollar index, which has reached a 1-week high and prompted liquidation of long positions in the cocoa industries.

Supply Dynamics Signal Mixed Signals for the Cocoa Industries

The cocoa industries are grappling with competing supply narratives. On the positive side for prices, cocoa arrivals at Ivory Coast ports have slowed considerably. For the week ending December 28, farmers in the world’s largest cocoa producer delivered 59,708 MT to ports—a sharp 27% decline compared to the same week last year. Year-to-date shipments through December 28 totaled 1.029 MMT, representing a 2.0% decrease from 1.050 MMT in the corresponding period twelve months prior.

Offsetting supply concerns, however, favorable growing conditions in West Africa have bolstered production expectations. A blend of rainfall and sunshine in the Ivory Coast has promoted cocoa tree flowering, while consistent precipitation in Ghana is supporting pod development ahead of the harmattan season. Chocolate manufacturer Mondelez recently noted that the current cocoa pod count in West Africa stands 7% above the five-year average and materially exceeds last year’s levels, suggesting robust harvest prospects.

Global Cocoa Industries Faces Demand Weakness

Demand pressures within the cocoa industries present a headwind for price appreciation. The Cocoa Association of Asia reported that third-quarter cocoa grindings contracted 17% year-over-year to 183,413 MT—the lowest quarterly processing volume in nine years. European cocoa grindings similarly deteriorated, declining 4.8% year-over-year in Q3 to 337,353 MT, marking the weakest third quarter in a decade. North American processors showed marginal growth of 3.2% year-over-year to 112,784 MT, though this figure was distorted by newly added reporting entities.

Competing Price Drivers for the Cocoa Industries

Several factors are providing underlying support to cocoa prices despite current headwinds. The International Cocoa Organization (ICCO) has dramatically revised its global surplus estimate for 2024/25, slashing it from 142,000 MT to just 49,000 MT—the first surplus forecast in four years after severe deficits plagued the cocoa industries in prior seasons. Global production is estimated at 4.69 MMT for 2024/25, up 7.4% annually, while Rabobank has independently cut its 2025/26 surplus forecast to 250,000 MT from 328,000 MT.

Structural support is emerging from index-related demand. Beginning in January, cocoa will be added to the Bloomberg Commodity Index (BCOM), an inclusion that Citigroup estimates could attract approximately $2 billion in buying pressure on New York cocoa futures contracts. Additionally, ICE-monitored cocoa inventories stored at U.S. ports have fallen to a 9.5-month low of 1,626,105 bags, indicating tightening domestic availability.

Headwinds From Policy and Regional Production

The cocoa industries confronted a bearish development when the European Parliament approved a one-year postponement of the deforestation regulation (EUDR) on November 26. This delay will permit the EU to continue importing agricultural commodities from deforestation-prone regions in Africa, Indonesia, and South America, potentially sustaining ample cocoa supplies and limiting price support.

Regional production concerns offer some offset. Nigeria, the world’s fifth-largest cocoa producer, faces declining output. The Nigerian Cocoa Association projects 2025/26 production will slide 11% year-over-year to 305,000 MT from an anticipated 344,000 MT for 2024/25. September cocoa exports remained flat year-over-year at 14,511 MT, providing limited relief.

Outlook for the Cocoa Industries

The cocoa industries are navigating a complex environment characterized by tight global balances contrasted against persistent demand challenges. While the addition of cocoa to major commodity indices and depleting U.S. inventories provide price scaffolding, weakness across Asian, European, and global grinding activity suggests limited fundamental support for sustained rallies. Currency movements and macroeconomic conditions will likely remain primary determinants of near-term price direction, with the dollar strength currently exerting downward pressure on cocoa valuations across global exchanges.