Hedge Funds Turn Bearish on London Cocoa as Supplies Improve

Hedge funds have turned bearish on London cocoa for the first time in three years and reduced bullish bets on New York futures, signaling a significant shift in market sentiment driven by improving supply conditions. This pivot follows a halving of cocoa prices from their December peak, with projections indicating that output may exceed consumption by approximately 186,000 tons in the 2025-26 season, more than double the current surplus.

Analysis

A significant shift in institutional sentiment is occurring in the cocoa market, with hedge funds turning net bearish on London cocoa for the first time in three years while simultaneously reducing bullish bets on New York futures. This pivot in positioning reflects a fundamental re-evaluation of the market's supply-demand dynamics following a period of historic tightness. The bearish turn is underpinned by a substantial price correction, where cocoa has already fallen by roughly half from its December peak. Looking forward, a recent Bloomberg survey reinforces this outlook by projecting that the supply surplus could more than double from the current season to approximately 186,000 tons in the 2025-26 season, driven by expectations of better harvests and potentially weakening demand.

Key Decisions for Investors

• Investors holding long positions in cocoa should consider reducing exposure or implementing hedging strategies, as the confluence of institutional bearishness and a forecasted doubling of the supply surplus points to continued downward price pressure.
• Traders may find opportunities in establishing or adding to short positions to align with the strong bearish momentum, but should remain vigilant for any data that contradicts the improving supply narrative.
• Monitor upcoming harvest data and global consumption figures closely, as any deviation from the projected 186,000-ton surplus for the 2025-26 season will be a critical catalyst for future price movements.