Cocoa's Surprise Bounce: What's Driving the Rally?

Cocoa just had a strong day—ICE NY December contracts jumped 3.34% and London cocoa climbed 2.19% on Thursday. Here’s what triggered the move:

The Dollar Effect Weaker USD sparked short covering in cocoa futures, which had gotten hammered over the past two weeks. When the dollar dips, commodities priced in dollars typically bounce back.

Supply Tightening ICE-monitored cocoa stockpiles at US ports hit an 8-month low of 1.74 million bags. Meanwhile, Ivory Coast cocoa shipments for the new marketing year (Oct 1-Nov 16) fell 5.7% y/y to 516,787 MT. Nigeria’s cocoa output is also expected to contract 11% next year to 305,000 MT.

Headwinds Still Present The EU delayed its deforestation regulation by one year, easing supply concerns temporarily. But West Africa’s harvest looks robust—cocoa pod counts in Ivory Coast are 7% above the five-year average, and farmers report favorable conditions. That’s putting downside pressure on prices.

Global cocoa demand is struggling too. Q3 Asia cocoa grindings plunged 17% y/y (lowest in 9 years), while European grindings fell 4.8% y/y. Chocolate sales in North America dropped over 21% in Q3.

The Big Picture The International Cocoa Organization projects a 142,000 MT surplus for 2024/25—the first in four years. But that’s coming after a 494,000 MT deficit in 2023/24, the worst in 60+ years. Cocoa stocks-to-grindings ratio hit a 46-year low of 27% last year.

So while yesterday’s rally caught some traders off-guard, structural oversupply and weak demand remain the underlying story.