Dollar Weakness Triggers Cocoa Bounce as Supply Concerns Resurface

Thursday’s commodity markets saw a notable recovery in cocoa, with December ICE NY cocoa closing +165 points (+3.34%) and December ICE London cocoa advancing +83 points (+2.19%). The sharp rebound was primarily driven by a weakening US dollar, which prompted substantial short covering in futures that had become severely depressed following the preceding fortnight’s decline.

Supply Tightness Provides Underlying Support

A critical factor bolstering prices is the contraction in monitored cocoa inventories. ICE-tracked stockpiles at US ports descended to an 8-month nadir of 1,738,691 bags, signaling tightening physical supplies. This inventory reduction comes amid reports of production challenges in key growing regions.

Nigeria, the world’s fifth-largest cocoa producer, represents a significant supply headwind. The nation’s Cocoa Association forecasts a -11% production decline for the 2025/26 season, projecting output of 305,000 MT compared to the expected 344,000 MT for the current 2024/25 cycle. Additionally, Ivory Coast, which supplies the majority of global cocoa, registered a -5.7% export slowdown, with 516,787 MT shipped to ports through mid-November versus 548,494 MT in the equivalent prior-year period.

Crop Development Prospects Amid Mixed Signals

Recent reports from West African farming regions present a nuanced outlook. Ivory Coast cultivators indicate robust cocoa pod development, with recent dry weather facilitating proper bean curing. Ghana’s farmers similarly benefit from favorable conditions supporting cocoa pod maturation. Mondelez data suggests the current pod count in West Africa stands 7% above the five-year mean, though this remains materially higher than last year’s actual harvest. The Ivory Coast’s principal harvest is in its nascent stages, with growers expressing optimism regarding quality potential.

This abundance stands in contrast to the historical deficit environment: the International Cocoa Organization reported a staggering -494,000 MT global deficit for 2023/24—the largest in six decades—yet projected a 142,000 MT surplus for 2024/25 as production recovered to 4.84 MMT.

Policy Shifts and Tariff Changes

Regulatory pressures also impacted sentiment. Wednesday’s decline accelerated following European Union discussions about postponing the Deforestation Regulation (EUDR) by one year. While this delay eases supply disruption concerns in the near term by permitting continued agricultural imports from deforestation-prone regions in Africa and Southeast Asia, it temporarily suppressed price support.

The Trump administration’s withdrawal of 10% reciprocal tariffs on non-domestic commodities, including cocoa, removed an additional price floor, though immediate market impact proved limited.

Global Demand Remains Under Pressure

Broader consumption patterns continue weighing on prices. Global cocoa grinding data reveals softening: Asian grindings fell -17% y/y to 183,413 MT (the lowest for any third quarter in 9 years), while European grindings contracted -4.8% y/y to 337,353 MT (the lowest third-quarter reading in a decade). North American chocolate candy sales volume declined over -21% during the 13-week period ending September 7, year-over-year. Even Hershey’s CEO acknowledged “disappointing” Halloween chocolate sales, a critical seasonal period representing nearly 18% of annual US confectionery revenue.

These structural demand headwinds continue to offset supply-side tightness, establishing a contested market dynamic where near-term technicals currently favor buyers.