Cocoa Prices Undercut by US Tariff Cut

Cocoa futures fell Monday (ICE NY Dec -0.44%, ICE London #7 Dec -1.47%) after the U.S. announced it would drop a 10% reciprocal tariff on commodities not grown domestically, including cocoa, although Brazilian supplies remain subject to a 40% national-security tariff; traders are weighing that policy change alongside mixed fundamental data. Supply-side signals are conflicted: Ivory Coast shipments are down 5.7% Y/Y through Nov. 16 and U.S. port stocks hit a 7.75-month low while Nigeria’s 2025/26 output is forecast to drop 11%, supporting prices, but strong West African pod counts (Mondelez reports a pod count 7% above the five‑year average), ICCO’s projection of a 142,000‑MT surplus in 2024/25 after a deep 2023/24 deficit, and weakening demand—Asian Q3 grindings -17% Y/Y, European Q3 grindings -4.8% Y/Y and disappointing seasonal chocolate sales—are exerting bearish pressure, leaving near‑term direction uncertain.

Analysis

December ICE NY cocoa fell 23 cents (-0.44%) and December ICE London #7 fell 60 pounds (-1.47%) after the U.S. announced it would drop a 10% reciprocal tariff on commodities not grown domestically, explicitly including cocoa; Brazilian cocoa remains subject to a 40% U.S. national-security tariff and Brazil was the fifth-largest producer in 2023, limiting the policy's full global flow impact. Supply signals are mixed: Ivory Coast export shipments from Oct. 1–Nov. 16 declined 5.7% year-over-year to 516,787 MT while ICE-monitored U.S. port inventories fell to 1,766,644 bags (a 7.75-month low), and Nigeria projects 2025/26 production down 11% to 305,000 MT, all supportive for prices. Offsetting those supports, Mondelez reports a West Africa pod count 7% above the five-year average, ICCO projects a 2024/25 global surplus of 142,000 MT following a 2023/24 deficit of 494,000 MT and +7.8% production growth to 4.84 MMT, and recent price retreats followed expectations of a bumper West African crop. Demand trends are weak: Q3 Asian grindings fell 17% y/y to 183,413 MT, European grindings fell 4.8% to 337,353 MT, North American grindings showed a 3.2% rise to 112,784 MT but were skewed by new reporters, and Hershey described Halloween sales as "disappointing," leaving near-term price direction uncertain and sentiment mildly negative.

Key Decisions for Investors

• Trim or hedge long cocoa futures exposure in the near term given the tariff removal and clear demand softness, and consider tactical short positions if inventories and grindings continue to weaken
• Monitor weekly Ivory Coast shipment data, ICE U.S. port stocks, ICCO production/stock revisions, and West Africa pod counts as primary re-entry triggers for long exposure
• Implement a selective equity trade favoring processors likely to benefit from lower input costs (per positive sentiment for MDLZ) while underweighting or shorting names exposed to weak seasonal chocolate demand (per negative sentiment for HSY)
• Keep position sizes moderate and use options or basis hedges ahead of the West Africa main harvest to manage volatility risk