Cocoa Prices Recover as Dollar Weakness Sparks Short Covering

December ICE New York cocoa jumped 3.34% (+165) and London cocoa rose 2.19% (+83) on Thursday as a softer dollar prompted short-covering amid markets that had been heavily oversold, with ICE‑monitored U.S. port stocks sliding to an eight‑month low of 1,738,691 bags. The move comes against mixed fundamentals: supply signals include a potentially bumper West African crop (Mondelez pod counts 7% above the five‑year average) and ICCO's forecast of a 2024/25 global surplus of 142,000 MT after a large 2023/24 deficit, while downside pressures stem from policy changes (U.S. removal of 10% reciprocal tariffs), weak confectionery demand (disappointing Hershey Halloween sales, steep Q3 grindings declines in Asia and Europe) and some early‑season shipment slowdowns in Ivory Coast and lower Nigerian output. The net implication is continued near‑term volatility—support from tight port stocks and localized crop issues but a medium‑term bias tempered by improved aggregate 2024/25 production and soft demand.

Analysis

December ICE New York cocoa closed up +165 ticks (+3.34%) and December London cocoa rose +83 ticks (+2.19%) as a softer dollar triggered short-covering after a steep, two-week selloff; ICE-monitored U.S. port inventories fell to an eight-month low of 1,738,691 bags, a near-term technical support that amplified the rally.

Supply fundamentals are mixed: Mondelez reports West African pod counts 7% above the five-year average and ICCO projects 2024/25 global production at 4.84 MMT (+7.8% y/y) with a 142,000 MT surplus, yet 2023/24 production fell -13.1% to 4.380 MMT and ICCO noted a decades-low stocks-to-grindings ratio for that season. Localized supply disruptions persist with Ivory Coast shipments down -5.7% y/y to 516,787 MT year-to-date and Nigeria projecting a -11% decline for 2025/26 to 305,000 MT, supporting episodic tightness.

Demand and policy are net bearish: Q3 Asia grindings plunged -17% y/y to 183,413 MT, European grindings fell -4.8% to 337,353 MT, and North American retail sales signals were weak (U.S. chocolate sales volume down >21% in a recent 13-week period); additionally the U.S. removal of a 10% reciprocal tariff on non-U.S.-grown commodities including cocoa reduces a legislative supply constraint. These elements imply continued near-term volatility driven by technical flows and inventory dynamics, while medium-term price direction will hinge on whether weak grindings and improving 2024/25 supply materialize sustainably.

Key Decisions for Investors

• Consider tactical, short-duration long exposures (e.g., call spreads or sized futures longs) to capture the technical short-covering and tight U.S. port stocks at 1,738,691 bags, but limit holding periods given ICCO's 2024/25 surplus estimate of 142,000 MT
• Monitor weekly ICE-monitored port stocks, Ivory Coast shipment pace (516,787 MT YTD, -5.7% y/y) and West African pod counts (Mondelez +7% vs five-year avg) as key triggers to add or trim positions
• Use options or explicit hedges to protect positions from demand risk and policy shifts given steep Q3 demand declines in Asia (-17%) and Europe (-4.8%) and weak U.S. retail signals (chocolate sales down >21%)
• Avoid increasing long exposure to confectioner equities showing demand weakness (Hershey flagged disappointing Halloween sales) until grindings and retail trends stabilize; consider selective exposure to companies with positive crop signals only after confirming demand recovery
• Favor liquid instruments (futures and listed options) and keep position sizing conservative because the backdrop combines technical short-covering, localized supply constraints, and a medium-term bias toward easier supply and weak demand