Cocoa’s Recovery Rally Faces a Growing Wall of Supply

Key Takeaways

• ICE Cocoa July settled at $3,596/tonne, up 4.8% weekly.
• Global cocoa surplus projected 75k tonnes 2024/25, 247k tonnes 2025/26.
• Western grindings fell 7.8% YoY; Asian grindings rose 5.2% YoY.
• Speculative short position hit 18,105 contracts, driving short-cover rally.

Pulse Analysis

The cocoa market is navigating a paradox of rising prices amid abundant supply. ICE’s July contract surged to $3,596 per tonne, a near‑5% weekly jump, even as the International Cocoa Organization projects a modest 75,000‑tonne surplus for 2024/25 that expands to 247,000 tonnes in 2025/26. Record‑high warehouse stocks and a 20‑month inventory peak underscore the structural oversupply, while drought‑stricken Ivory Coast and Ghana—responsible for roughly 60% of global output—inject weather‑related risk. Coupled with shipping bottlenecks that have lifted landed costs, these factors have forced speculative traders to hold a net short of 18,105 contracts, setting the stage for a short‑cover rally that fuels price gains disconnected from physical scarcity.

On the demand side, Western markets remain subdued. European cocoa grindings dropped 7.8% year‑on‑year, the weakest first‑quarter reading in 17 years, and North American grindings fell 3.8%, reflecting lingering consumer restraint after last year’s price spike above $8,000 per tonne. Chocolate manufacturers have trimmed portions and reformulated products, a habit that takes time to reverse. In contrast, Asian processors posted a 5.2% year‑on‑year increase, offering a modest counterbalance but insufficient to offset the Western contraction given the current inventory levels. This uneven demand landscape suggests that any price rally must contend with a fundamentally weak consumption base in the world’s largest cocoa‑consuming regions.

Technical analysis highlights key thresholds that will dictate market sentiment. A sustained close above $3,700 could validate the short‑cover bounce, while a break below would redirect focus to the 50‑day SMA near $3,344. For a genuine trend reversal, prices need to clear $4,223 and ideally breach $4,400, with the 200‑day SMA at $5,395 acting as the ultimate ceiling. Investors and commodity traders should monitor inventory trends, weather updates in West Africa, and the evolving short‑position dynamics, as these variables will determine whether the current rally matures into a lasting recovery or merely a fleeting technical correction.