Global Cocoa Market Faces Mixed Outlook
Cocoa prices have experienced a mixed performance in recent days, with both downward and upward pressures influencing market dynamics. The July ICE New York cocoa contract (CCN26) closed down -10 (-0.26%), while the July ICE London cocoa #7 (CAN26) fell by -23 (-0.78%). This decline followed an initial advance that was later reversed due to updated weather forecasts predicting drier conditions in West Africa at the end of the week.
Earlier this week, cocoa prices had risen after reports from farmers in the Ivory Coast indicated damage caused by heavy rain and strong winds, which affected young flower buds and damaged cocoa trees. However, the anticipated shift in weather patterns has led to a reversal in price trends.
Fund Positions and Short-Selling Impact
A significant short position held by funds could amplify any potential short-covering rally in NY cocoa. According to the latest Commitment of Traders (COT) report, money managers increased their short positions in NY cocoa by 2,963 contracts during the week ended June 2, resulting in a net short position of 21,111. This marks the highest level in over three years, indicating heightened bearish sentiment among institutional investors.
Last Friday, cocoa prices dropped to two-week lows as inventory levels rose to a 1.75-year high of 2,929,074 bags. This increase in supply has contributed to downward pressure on prices.
Weather Concerns and El Niño Effects
Despite these challenges, there are factors that could limit further downside for cocoa prices. The potential formation of an El Niño weather pattern poses a risk to cocoa production in West Africa. The US National Oceanic and Atmospheric Administration (NOAA) estimates an 82% probability that El Niño conditions will develop between now and July and persist through the end of the year, with a 67% chance of a “Super El Niño.” Such conditions could lead to warmer and drier weather, which may negatively impact cocoa yields.
Early surveys of the 2026/27 West African cocoa crop suggest below-average cherelle formation, signaling a weaker outlook for the main harvest, which begins in October. These findings add support to current cocoa prices.
Supply and Demand Dynamics
Increased cocoa shipments from the Ivory Coast are a negative factor for prices. Data from Monday showed that farmers shipped 1.69 MMT of cocoa to ports in the current marketing year, up 3.0% compared to the same period last year. Additionally, the Ivory Coast raised its delivery estimate for the 2025/26 season to 2.2 MMT, citing favorable weather conditions.
On the demand side, consumer demand for chocolate appears to be holding steady. Recent earnings reports from Hershey and Mondelez International exceeded expectations, suggesting continued interest in chocolate products despite high prices. However, Circana reported a 1.3% decline in chocolate candy sales in North America during the 13 weeks ending March 22 compared to the same period last year.
Global Surplus and Market Projections
The prospects of a smaller global surplus are also supportive of cocoa prices. StoneX recently reduced its 2026/27 global cocoa surplus estimate to 149,000 MT from 267,000 MT, citing risks to the West African cocoa crop due to expected El Niño conditions. Similarly, its 2025/26 surplus forecast was lowered to 247,000 MT from 287,000 MT.
The prolonged closure of the Strait of Hormuz is disrupting global cocoa supplies and supporting prices. This closure has led to higher fertilizer costs, increased shipping rates, insurance expenses, and fuel prices, all of which raise the cost of cocoa imports for buyers around the world.
Regional Demand Trends
Weak global cocoa demand remains a concern. The National Confectioners Association reported a 3.8% year-over-year decline in North American Q1 cocoa grindings to 106,087 MT. Meanwhile, the European Cocoa Association noted a 7.8% drop in Q1 European cocoa grindings to 325,895 MT, marking the largest decline in 17 years. In contrast, Asian cocoa grindings saw a surprising 5.2% increase in Q1, defying expectations of a decline.
Smaller cocoa supplies from Nigeria, the world’s fifth-largest producer, are supportive of prices. Nigerian cocoa exports in April fell by 20% year-over-year to 14,921 MT, and the country’s Cocoa Association projects a 11% decline in 2025/26 production to 305,000 MT.
Government Actions and Production Forecasts
In February, Ghana reduced the official price it pays its cocoa farmers by nearly 30% for the 2025/26 growing season. The Ivory Coast also announced a 57% reduction in payments to farmers for the mid-crop harvest starting in March. Together, Ghana and Ivory Coast account for more than half of the world’s cocoa supply.
The Ivory Coast anticipates a 10.8% year-over-year decline in 2025/26 production to 1.65 MMT, down from 1.85 MMT in 2024/25. Rabobank has also adjusted its global cocoa surplus forecast for 2025/26 to 250,000 MT, down from 328,000 MT in November.
Positive Developments and Market Sentiment
On the positive side, the International Cocoa Organization (ICCO) reduced its 2024/25 global cocoa surplus estimate to 48,000 MT from 75,000 MT in March, marking the first surplus in four years. ICCO estimated that global cocoa production in 2024/25 increased by 8.3% year-over-year to 4.723 MMT.
As of the date of publication, Rich Asplund did not hold any positions in the securities mentioned in this article. All information provided is for informational purposes only. For more details, please refer to the Disclosure Policy.
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