Cocoa Futures Bounce from Multi-Year Lows as Oversold Market Triggers Short Covering
Cocoa futures found a tentative floor on Friday, with March contracts on ICE in New York (CCH26) and London (CAH26) edging higher by 0.50% and 0.75% respectively. The gains, while modest, interrupted a prolonged sell-off that had earlier sent prices tumbling to 2.25-year and 2.5-year lows for the respective benchmarks.
The rally was largely technical in nature. After weeks of relentless pressure, the market reached extreme oversold conditions, prompting funds to cover short positions and providing a brief respite for the beleaguered commodity.
The fundamental picture, however, remains challenging. Analysts point to a well-supplied market and softening demand as key headwinds. StoneX recently projected significant global cocoa surpluses for the next two seasons, while the International Cocoa Organization (ICCO) reported a year-on-year increase in global stocks. Demand-side indicators are equally concerning. Barry Callebaut, the world's largest bulk chocolate maker, reported a stark 22% drop in cocoa sales volume last quarter, attributing it to "negative market demand." Regional cocoa grinding data from Europe and Asia for Q4 further confirmed the weakness, with European processing hitting a 12-year low for the quarter.
Favorable growing conditions in West Africa, the heart of global cocoa production, are adding to the supply pressure. Reports from the Ivory Coast and Ghana suggest a promising February-March harvest, with pod counts running above historical averages. This has bolstered expectations for a robust main crop.
Yet, not all signals are bearish. Some West African producers are reportedly withholding supplies in response to low prices, as evidenced by a slight year-on-year dip in shipments from the Ivory Coast. Furthermore, the longer-term supply outlook is tightening. The ICCO has progressively slashed its surplus estimates for the current and upcoming seasons, and Nigeria, a top-five producer, is facing a projected double-digit drop in output. This follows the historic global deficit recorded for the 2023/24 season, a reminder of the market's underlying volatility.
Market Voices:
"This is a classic dead-cat bounce," said Marcus Thorne, a veteran commodities trader at Horizon Capital. "The technicals were stretched, so a pullback was inevitable. But with grindings down, consumer resistance high, and a decent African crop coming online, the path of least resistance is still lower. Don't be fooled by a one-day move."
Eleanor Vance, a portfolio manager focused on soft commodities, offered a more measured view: "The short-covering is understandable, but it masks a critical shift. We're transitioning from a period of extreme scarcity to one of relative balance, even surplus. The price discovery process is painful but necessary. The key question is whether current prices are low enough to stimulate sufficient demand recovery."
"It's absolute madness that farmers are holding beans back while chocolate companies are reporting collapsing sales," argued David Chen, an activist with the Fair Trade Advocacy Network. His tone was sharp and emotional. "The entire supply chain is dysfunctional. Producers are squeezed at these prices, yet consumers are still paying a premium. The volatility only benefits speculators, not the growers or the end buyers. This market isn't broken; it's rigged."
"We must look beyond the immediate surplus narrative," cautioned Dr. Aliyah Mensah, an agricultural economist at the Global Food Policy Institute. "Structural issues in West Africa—aging tree stocks, climate vulnerability, and farmer poverty—haven't vanished. One or two good seasons don't solve a decades-long problem. The market's hypersensitivity to weather reports proves the underlying fragility remains."
Please note: This analysis is for informational purposes only and does not constitute investment advice. The original data was sourced from Barchart.com.