Cocoa Prices Pressured by an Improving Supply Outlook

Cocoa futures dropped to 1.75‑year lows as reports of a larger West African crop—Mondelez’s pod count is 7% above the five‑year average and weather has aided development—plus the U.S. removal of a 10% reciprocal tariff pressured prices, though technical short covering produced a mixed settlement. Offsetting factors include early‑season Ivory Coast shipments down 5.7% y/y through Nov. 16, ICE‑monitored U.S. inventories at an eight‑month low (~1.75m bags), Nigeria’s projected 11% production decline for 2025/26 and ICCO’s contrast between a large 2023/24 deficit (‑494,000 MT) and a forecast 2024/25 surplus (+142,000 MT); weak demand—sharp y/y drops in Asian and European Q3 grindings and weaker U.S. candy sales—adds bearish pressure. The market is therefore balancing larger West African output and policy headwinds against inventory draws and regional supply shortfalls, leaving near‑term price direction uncertain and highly sensitive to forthcoming crop, export and grindings data.

Analysis

December ICE New York cocoa (CCZ25) finished down 2 points (-0.04%) while London (CAZ25) gained 40 points (+1.00%), with futures tumbling to a 1.75‑year nearest‑futures low before a mixed settlement driven by technical short‑covering. Prices fell on reports of a bumper West African crop: Mondelez reported a West Africa pod count 7% above the five‑year average and favorable weather, and the Ivory Coast main harvest has begun with farmers optimistic about quality.

Supply/demand signals are mixed and key to near‑term direction. Ivory Coast shipments through Nov.16 stood at 516,787 MT, down 5.7% y/y from 548,494 MT, while ICE‑monitored U.S. inventories fell to an eight‑month low of 1,747,459 bags; Nigeria projects a 11% y/y production decline to 305,000 MT. ICCO data show a 2023/24 deficit of 494,000 MT and a 2024/25 forecasted surplus of 142,000 MT, with 2024/25 global production estimated +7.8% y/y.

Demand and policy are additional headwinds. The U.S. dropped a 10% reciprocal tariff on non‑U.S. commodities including cocoa, Asian and European Q3 grindings fell 17% and 4.8% y/y respectively, and Hershey reported disappointing Halloween sales — collectively increasing downside risk and leaving near‑term prices highly sensitive to forthcoming crop, export and grinding data.

Key Decisions for Investors

• Trim near‑term long exposure to cocoa futures or cocoa‑focused funds given larger West African pod counts, tariff removal and weak Asian/European grindings
• Monitor Ivory Coast export pace, ICE inventory levels, ICCO revisions and West African pod counts closely and be prepared to adjust positions if shipments or inventories deviate from current signals
• Use option structures or hedges rather than outright directional positions to manage volatility risk stemming from conflicting supply (inventory draws, Nigerian decline) and demand (grindings, candy sales) indicators
• For equity exposure to chocolate makers, hedge input‑cost risk and watch company‑level sales trends (e.g., Hershey) before adding long positions, while selectively considering producers/processors if supply disruption evidence mounts