NY Cocoa Retreats as the US May Cut Tariffs on Crops Not Grown in the US

NY cocoa prices plunged to a 1.75-year low, driven by expectations of potential U.S. tariff cuts on cocoa and reports of an anticipated bumper West African crop, alongside significantly weak global demand evidenced by disappointing chocolate sales and sharp declines in Q3 cocoa grindings across Asia and Europe. Counteracting these bearish pressures are factors such as reduced Ivory Coast exports, record short positions in London cocoa that could fuel a rally, shrinking ICE inventories, and the upcoming inclusion of cocoa in the Bloomberg Commodity Index, which is expected to attract substantial passive fund inflows. The supply outlook remains complex, with the ICCO projecting a 2024/25 surplus following a record deficit in 2023/24.

Analysis

NY cocoa (CCZ25) fell -3.26% to a 1.75-year low, primarily due to anticipated US tariff cuts on cocoa and expectations of a bumper West African crop, with Mondelez reporting pod counts 7% above the five-year average. Weak global demand, evidenced by Hershey's "disappointing" Halloween sales and Q3 grindings declines of -17% in Asia and -4.8% in Europe, further pressured prices.

Conversely, supportive factors include a -9% year-over-year decline in Ivory Coast cocoa exports and ICE-monitored inventories reaching a 7.5-month low. Nigeria's 2025/26 cocoa production is also projected to decrease by -11% y/y.

Significant short positioning in London cocoa, at a 4-year high of 19,194 contracts, could trigger a short-covering rally. The upcoming January inclusion of cocoa in the Bloomberg Commodity Index is a major catalyst, expected to drive approximately $1.9 billion in passive fund inflows.

While the ICCO revised the 2023/24 global cocoa deficit to a 60-year high of -494,000 MT, it projects a 2024/25 global surplus of 142,000 MT, the first in four years, with production estimated to rise +7.8% y/y, signaling a potential long-term supply recovery.

Key Decisions for Investors

• Monitor developments regarding US tariff cuts on cocoa, as these could significantly alter import costs and demand dynamics.
• Evaluate the potential for a short-covering rally in London cocoa given the record net-short positions, considering this as a tactical trading opportunity.
• Assess the impact of cocoa's inclusion in the Bloomberg Commodity Index, anticipating substantial passive fund inflows that could provide structural price support.
• Watch for updated crop forecasts from West Africa and ICCO revisions, as the projected 2024/25 surplus could temper long-term bullish outlooks despite current deficits.