What to Anticipate in Cocoa Futures

The cocoa futures market has experienced significant volatility this year, influenced by a combination of supply issues, climate-related challenges, and changing demand. As we approach the last part of the year, several key factors are shaping the outlook for cocoa futures’ prices.

The International Cocoa Organization (ICCO) projected a global cocoa surplus of 142,000 metric tons for the 2024/25 crop year, marking the first surplus in four years. This forecast was supported by a 7.8% year-over-year increase in global cocoa production, reaching 4.84 million metric tons. Nigeria reported a big jump in cocoa exports in January, adding to the already heavy supply concerns.

However, challenges continue in major producing countries. In Ivory Coast, still the world's largest cocoa producer, the state-guaranteed farmgate price was increased to 2,800 CFA francs ($5.05) per kilogram in October. This hike, paired with poor-quality stored beans, has led to significant slowdowns in cocoa purchases, as exporters face high costs. The quality of the beans are also a concern. Black pod disease can really affect the supply this time of year.

The boost in cocoa prices has prompted some of the largest chocolate manufacturers to reassess their operations. Companies like Hershey and Mondelez have reported declining cocoa grindings, meaning a reduced demand. In response, some manufacturers are reformulating products to reduce cocoa content, leading to changes in labeling and product ingredients.

Technical analysis suggests a bearish tone in cocoa futures. Indicators such as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) point to downward momentum, with potential short-term corrections.

The cocoa futures market for the rest of the year…will likely be a complex trading situation compiled of increased supply, constantly changing demand, and production difficulties. While the global surplus may provide downward pressure on prices - quality issues and demand adjustments in key markets could lead to more volatility. Traders in the cocoa should continue to monitor both macroeconomic indicators and regional developments to navigate the evolving landscape.

Disclaimer: Past performance is not indicative of future returns. Opinions are my own. Profitable trades are not guaranteed.