Cocoa market remains highly volatile

The cocoa market remains extremely volatile and continues to be driven by uncertainty surrounding future supply, tensions in Ivory Coast, and movements by speculative funds. After a strong price rally earlier this month, prices have fallen back over recent days. This demonstrates how sensitive the cocoa market remains to shifts in sentiment and changing expectations regarding the West African crop. At the beginning of last week, cocoa prices rose sharply. In New York, cocoa gained more than 12% in a single day, reaching its highest level in three and a half months, while London prices also increased significantly. The rally was fuelled by concerns over future supply from West Africa. Traders pointed to the risk of a potential El Niño weather pattern later this year, rising fertiliser costs, and reports of poor flowering on cocoa plantations in Ivory Coast. In addition, a period of dry and irregular rainfall created uncertainty regarding both the quality and size of the mid-crop. The market also found support from speculative funds, which still held substantial short positions. As prices began to rise, many of these positions were closed out, accelerating the rally further. According to data from the Commodity Futures Trading Commission, speculators have recently reduced their net short positions considerably. This confirms that a significant part of the price increase was technically driven by short covering.However, sentiment then shifted rapidly. This week, cocoa prices declined sharply and hit a two-week low. London cocoa dropped towards £2,875 per tonne, while New York prices fell to around $3,800 per tonne. The main reason behind this correction is that expectations for the Ivorian crop have been revised upwards. Earlier estimates pointed to production of around 1.8 million tonnes, but traders are now discussing figures between 2.1 and 2.2 million tonnes. In addition, arrivals at Ivory Coast ports are running slightly ahead of last year. This suggests that there is less immediate physical tightness in the market than previously expected. There are also ongoing concerns about unsold cocoa stocks in Ivory Coast. Following the sharp fall in prices earlier this season, many exporters and trading houses encountered financial difficulties, leaving large volumes of cocoa stranded with farmers and cooperatives. In some regions, this led to protests by farmers who had not been paid for their crop. The Ivorian government and the Coffee and Cocoa Council intervened in an effort to ease tensions. The situation in Ivory Coast therefore remains highly complex. On the one hand, cocoa availability currently appears sufficient, putting pressure on prices. On the other hand, this situation may create risks for future harvest years. Many farmers have suffered financial losses because they were unable to sell their beans at the previously fixed producer price. As a result, there is now a lack of funds for investments in fertilisers, crop protection products, and plantation maintenance. Suppliers of agricultural inputs report that as much as 90% of their inventories remain unsold because farmers are barely investing. This could eventually affect future production levels. Reduced use of fertilisers and crop protection products increases the risk of disease outbreaks and lower yields. In addition, many cocoa trees in Ivory Coast are ageing and require additional nutrients to remain productive. Market participants therefore fear that production during the 2026/27 season could come under pressure despite the current surplus. Conflicting signalsThe market is therefore facing conflicting signals. In the short term, abundant supply and high inventories are weighing on prices. Over the medium term, however, structural concerns surrounding cocoa production in West Africa remain significant. Factors such as El Niño, rising input costs, ageing plantations, and financial difficulties among farmers could tighten the market again at a later stage. At the same time, demand remains relatively strong. Cocoa processing volumes in Ivory Coast rose by 22% in April compared with the previous year. This suggests that global chocolate consumption is holding up reasonably well despite elevated prices. As a result, the market could quickly move back into imbalance if production disappoints again.