Cocoa Futures Price Rebounds as Dollar Softening Triggers Short Covering

Cocoa futures posted modest gains today as weakness in the US dollar sparked fresh short-covering activity across the complex. March ICE NY cocoa futures advanced 19 points (+0.43%), while March ICE London cocoa futures gained 7 points (+0.22%). The currency-driven bounce comes after cocoa futures had extended a grueling two-week selloff, with both NY and London posting their lowest prices in 2+ years, signaling that structural headwinds remain firmly in place.

Currency Swings Create Tactical Opportunities in Futures Markets

The rebound in cocoa futures price today reflects the mechanical relationship between dollar strength and commodity valuations. When the US dollar weakens—as measured by the DXY index—non-dollar commodities become cheaper for foreign buyers, creating an incentive for traders to cover short positions that had been positioned for further downside. However, this tactical relief masks the broader fundamental deterioration crushing cocoa futures markets.

Global Demand Collapse Accelerates Pressure on Prices

The erosion in cocoa futures price continues to reflect collapsing global demand. Barry Callebaut AG, the world’s largest industrial chocolate manufacturer, reported a 22% decline in cocoa division sales volume during the quarter ending November 30, specifically attributing the drop to “negative market demand and a prioritization of volume toward higher-return segments.” This signals not just consumption weakness, but also margin compression across the value chain.

The demand destruction extends globally. European cocoa grindings in Q4 fell 8.3% year-over-year to 304,470 MT—a far steeper decline than the anticipated 2.9% and the weakest Q4 performance in 12 years. Asian cocoa grindings similarly contracted 4.8% year-over-year to 197,022 MT in Q4, while North American grindings barely moved, gaining just 0.3% year-over-year to 103,117 MT. This synchronized weakness across all major consumption regions reveals that high cocoa futures prices have successfully choked off demand.

Supply Recovery in West Africa Adds Downward Pressure

Paradoxically, just as demand crumbles, supplies are rebounding. West African growing conditions have been favorable, with pod counts in major producing regions running 7% above the five-year average, according to Mondelez. Farmers in the Ivory Coast and Ghana are reporting larger and healthier pods compared to the prior year, setting up a strong February-March harvest window.

This supply abundance is being reflected in port availability. Cumulative Ivory Coast cocoa shipments through mid-January reached 1.16 MMT on the 2025/26 marketing year—down 3.3% from the prior year but still maintaining substantial export flows given the country’s dominance as the world’s largest producer. Nigeria, the fifth-largest producer, has seen November exports decline 7% year-over-year to 35,203 MT, though Nigeria’s Cocoa Association projects 2025/26 production will fall 11% to 305,000 MT. This supply support is weighing on cocoa futures price recovery prospects.

Global Supply Surplus Signals Structural Headwinds Ahead

The shift from extreme scarcity to emerging abundance is staggering. In May 2024, the International Cocoa Organization (ICCO) reported a 494,000 MT deficit for 2023/24—the largest shortfall in over 60 years. But the organization revised its outlook in December, now forecasting a 49,000 MT surplus for 2024/25, marking the first surplus in four years. Global cocoa production for 2024/25 is projected to rise 7.4% year-over-year to 4.69 MMT.

Rabobank has similarly trimmed its surplus forecast, now predicting a 250,000 MT surplus for 2025/26, down from a November estimate of 328,000 MT. Even with this downward revision, the persistence of surpluses indicates cocoa futures price will remain under structural pressure as the market rebalances from chronic deficit conditions.

Regulatory Delays and Inventory Builds Compound Downward Risks

The European Parliament’s November approval of a one-year delay to the EUDR (EU Deforestation Regulation) has temporarily eased supply concerns. By deferring enforcement, the regulation allows continued EU imports of agricultural products from deforestation-prone regions in Africa, Indonesia, and South America, supporting the availability of cocoa supplies. This policy reprieve removes a potential bullish catalyst for cocoa futures price.

On the inventory front, ICE-monitored cocoa stocks held at US ports have rebounded sharply from a 10-month low of 1,626,105 bags on December 26 to a 2-month high of 1,741,172 bags by late January. Rising inventory is a classic bearish signal for commodity futures, signaling ample supply chains and reduced production urgency.

The Path Forward for Cocoa Futures

The brief bounce in cocoa futures price today represents tactical positioning rather than a fundamental shift. The underlying supply-demand architecture continues to deteriorate, with global consumption weak, regional harvests robust, and inventory levels rising. Until demand begins to recover meaningfully or supply disruptions emerge, cocoa futures will likely remain pressured despite currency-driven relief rallies.