Cocoa Futures News: Dollar Strength Sparks Wave of Long Liquidations

Market Pullback Follows Strong Dollar Rally

The cocoa futures market is experiencing notable selling pressure as the U.S. dollar strengthens. ICE NY cocoa contracts (CCH26) for March delivery have declined 1.97% today, while ICE London cocoa (CAH26) March contracts dropped 1.49%. This retreat comes after Monday’s impressive rally, with the current weakness primarily driven by currency headwinds and profit-taking activity from long position holders forced to close their bets.

Supply Tightness Underpins Market Fundamentals

Despite today’s pullback, structural support remains robust for cocoa futures. The supply picture continues to tighten across multiple dimensions. Shipments from the Ivory Coast—responsible for roughly one-third of global cocoa production—have shown signs of slowdown. Between October 1 and January 4, farmers delivered 1.073 million metric tons to ports, representing a 3.3% year-over-year decline from 1.11 MMT in the comparable period last year.

The International Cocoa Organization (ICCO) has taken a notably cautious stance on global supply availability. In its November 28 assessment, the organization slashed its 2024/25 surplus projection to just 49,000 MT from an earlier forecast of 142,000 MT. Production estimates have also been trimmed, with the 2024/25 global output forecast revised downward to 4.69 MMT from 4.84 MMT.

Rabobank’s independent analysis aligns with this tightening view. The financial institution recently cut its 2025/26 global cocoa surplus estimate to 250,000 MT, down from a prior 328,000 MT projection.

Key Supply Headwinds Emerging

Nigeria’s production capacity is becoming increasingly strained. The Cocoa Association of Nigeria forecasts a material 11% output decline for the 2025/26 season to 305,000 MT, compared with a projected 344,000 MT for 2024/25. September export activity from Nigeria held steady at 14,511 MT, offering little relief on the supply side.

West African weather patterns have been supportive in the near term. The Tropical General Investments Group reports that improving conditions across the region are expected to strengthen the February-March harvest in both the Ivory Coast and Ghana, with farmers noting notably larger and healthier cocoa pods relative to the prior year. Mondelez International, a major processor and chocolate manufacturer, has confirmed these observations, reporting that current pod counts in West Africa run 7% above the five-year average and substantially exceed last year’s levels. Main crop harvesting in the Ivory Coast has already commenced, with local growers expressing optimism about output quality.

U.S. Inventory Levels Add Support

Physical supplies in the United States remain constrained. ICE-monitored inventories at U.S. ports have contracted to 1,626,105 bags, marking a 9.5-month low as of late December. This inventory tightness could support prices if dollar strength subsides.

Demand Weakness Provides Counterbalance

Global grinding activity—a key demand indicator for physical cocoa—has disappointed across major consuming regions. Asia-region grindings fell sharply by 17% year-over-year in the third quarter to 183,413 MT, the weakest Q3 performance in nine years per the Cocoa Association of Asia. European grindings also deteriorated, declining 4.8% year-over-year to 337,353 MT, marking the worst Q3 result in a decade. North America showed marginal improvement with a 3.2% year-over-year gain to 112,784 MT, though reporting changes may have influenced this figure.

Index Inclusion Creates New Demand Vector

Fresh buying interest is anticipated from an unexpected source: Bloomberg’s commodity derivatives complex. Cocoa futures have recently gained inclusion in the Bloomberg Commodity Index (BCOM) starting this month, a development that Citigroup estimates could generate approximately $2 billion in index-driven purchases of NY cocoa futures. This mechanical buying pressure could support prices if it materializes as expected.

Regulatory Environment Turns Favorable

The European Parliament’s November 26 decision to defer deforestation law implementation by one year has eased immediate supply concerns. The postponement permits continued agricultural imports—including cocoa—from deforestation-affected regions across Africa, Indonesia, and South America. The EU’s EUDR regulation, which targets deforestation linked to key commodities including cocoa and soybeans, will now face delayed enforcement, removing a potential supply disruptor.

Historical Context: Recovery Expected

The prior 2023/24 season marked the worst deficit in over 60 years. The ICCO documented a -494,000 MT global deficit, reflecting a 12.9% year-over-year production collapse to 4.368 MMT. The current season represents a recovery phase, with production anticipated to rebound 7.4% year-over-year, though surplus levels remain modest by historical standards.

Summary

Cocoa futures news reveals a market caught between competing forces. While today’s dollar-driven selloff pressures prices, the underlying supply-demand balance remains supportive for bulls over the medium term. Tight inventories, tightening production forecasts, new index-related demand, and favorable weather conditions in West Africa provide multiple foundations for cocoa futures support, potentially limiting downside from current levels once dollar strength moderates.