NY Cocoa Prices Sink on Possible US Tariff Reductions

NY cocoa prices dropped sharply to a 1.75-year low, while London cocoa saw a slight increase, as the market reacted to conflicting supply and demand signals. Bearish sentiment stemmed from potential U.S. tariff cuts, expectations of a robust West African crop, and weak global demand, evidenced by disappointing chocolate sales and reduced Q3 grindings in Asia and Europe. Conversely, slower Ivory Coast exports, shrinking ICE inventories, and the impending inclusion in the Bloomberg Commodity Index, poised to attract significant passive fund inflows, offered some support. This complex outlook is further complicated by the International Cocoa Organization's mixed projections of a record 2023/24 deficit followed by a projected 2024/25 surplus.

Analysis

NY cocoa (CCZ25) fell -3.50% to a 1.75-year low, contrasting with London cocoa's (CAZ25) +0.41% gain, reflecting mixed market sentiment. Bearish pressure stems from potential US tariff cuts on non-US crops and expectations of a robust West African main crop, with pod counts 7% above the five-year average.

Global demand weakness is evident from Hershey's "disappointing" Halloween sales and significant Q3 grindings declines in Asia (-17% y/y) and Europe (-4.8% y/y), reaching multi-year lows. Partially offsetting this, Ivory Coast exports are down -9% year-over-year, ICE inventories are at a 7.5-month low, and Nigeria projects an -11% production decline for 2025/26.

A key bullish catalyst is cocoa's January inclusion in the Bloomberg Commodity Index (BCOM), potentially driving $1.9 billion in passive fund inflows. This could trigger a short-covering rally, as funds hold a 4-year high in net-short London cocoa positions.

The International Cocoa Organization (ICCO) projects a record 2023/24 global deficit of -494,000 MT, the largest in over 60 years. However, it forecasts a 2024/25 surplus of 142,000 MT due to an estimated +7.8% production increase, creating significant uncertainty for the medium-term supply-demand balance.

Key Decisions for Investors

• Investors should closely monitor West African crop developments and global demand indicators, particularly Q4 grindings, given the mixed supply-demand outlook.
• Anticipate potential price support from significant passive fund inflows due to cocoa's January inclusion in the Bloomberg Commodity Index, which could also trigger short-covering rallies.
• Given the ICCO's conflicting deficit/surplus projections, investors should maintain agile positioning and be prepared for continued volatility in cocoa futures.