Cocoa prices corrected sharply downward

Cocoa prices corrected sharply in the second half of July as speculative positions were unwound and weak European processing data weighed on the market. Although stronger grindings in Asia and North America provided temporary support, comfortable near-term supplies from Côte d’Ivoire and improved production prospects kept prices under pressure.Cocoa prices declined significantly during the last two weeks of July, reversing most of the sharp gains recorded earlier in the month. The downward correction began after prices reached their July peak on 9 July and accelerated during the second half of the month. Between 9 and 27 July, the cocoa price on the ICE US market fell by 21.0%, from $6,455 to $5,100 per tonne. Over the same period, the London cocoa price declined by 20.2%, from £4,805 ($6,360) to £3,832 ($5,074) per tonne. The decline was broadly similar across both markets, although the fall was slightly stronger in New York.Volatility in the cocoa market during the last two weeks was primarily driven by financial factors. The sharp decline in cocoa prices during the second half of July initially reflected the unwinding of the speculative rally recorded earlier in the month. A large inflow of speculative capital had pushed prices rapidly higher as traders reacted to the possibility of a strong El Niño event and weaker West African production in 2026/27. However, the speed of the increase encouraged profit-taking and prompted ICE to raise margin requirements several times. The higher cost of maintaining futures positions reduced market liquidity and contributed to exceptionally large daily price movements. On 13 July, both London and New York cocoa futures temporarily fell by approximately 9% during the trading session.Changes in speculative positioning continued to amplify price volatility. CFTC data show that non-commercial traders reduced their short positions in New York cocoa by 5,338 contracts between 14 and 21 July, while increasing their long positions by 1,339 contracts. Their net short position consequently narrowed from approximately 10,600 contracts to fewer than 4,000 contracts. This indicates that the market remained strongly influenced by short covering and the rebuilding of speculative positions, rather than by changes in physical cocoa availability alone.Weak European processing weighs on pricesThe publication of the European second-quarter grinding figures provided an additional source of downward pressure. European cocoa grindings fell by 4.6% year-on-year to 316,366 tonnes, the lowest second-quarter volume since 2020. The figures confirmed that high cocoa and chocolate prices are continuing to weigh on processing activity and demand in the region. Following the publication of the data on 16 July, London cocoa futures fell by around 5%, while New York prices declined by almost 5%.Nevertheless, the global processing picture was considerably more mixed than the European figures suggested. Asian cocoa grindings increased by 25.1% year-on-year to 224,646 tonnes during the second quarter, while North American grindings rose by 7.7% to 109,659 tonnes. The results were considerably stronger than market participants had expected and helped cocoa prices recover temporarily on 17 July. London futures rose by around 6%, while New York prices gained almost 6% following the publication of the figures.The unusually strong increase in Asian grindings partly reflects expanding processing activity in countries such as Indonesia and Malaysia, where cocoa products are manufactured for both domestic consumption and export. In Europe, by contrast, lower cocoa-bean imports and increased imports of semi-finished products, such as cocoa butter and cocoa powder, may be limiting local grinding activity. The regional figures therefore suggest that some processing activity may be shifting towards producing countries, rather than indicating an equally strong recovery in final chocolate consumption.Near-term cocoa supplies remain comfortableRelatively favourable supply conditions for the current 2025/26 season also contributed to the downward correction. Cocoa arrivals at ports in Côte d’Ivoire, the world’s largest cocoa-producing country, reached about 1.96 million tonnes by 12 July, almost 19% more than during the same period of the previous season. Weekly arrivals were also running well ahead of last year's level. These figures indicate that the current crop has performed considerably better than initially expected and have reduced concerns about immediate bean availability. The Ivorian cocoa regulator expects national production to reach between 2.0 million and 2.1 million tonnes in 2025/26, representing the first annual increase in production in three seasons. Improved fertiliser use and better farm maintenance, supported by the exceptionally high cocoa prices of recent years, have contributed to this recovery. The stronger crop, together with unsold stocks accumulated earlier in the season, means that the market currently has a larger supply buffer than it did during the severe shortages of 2023/24 and 2024/25.