Cocoa surges 7% on West Africa extreme weather📈Supply at risk again?

Cocoa (COCOA) futures on ICE are up more than 7% today, as reports of extreme weather (droughts and heavy rains) in Africa, combined with supply concerns, have triggered a significant wave of short covering, forcing traders (especially the commercials) who had been betting on price declines to exit their positions.

• Cocoa deliveries from Ivory Coast in the ongoing 2024/2025 season fell 2% y/y as of August 10. The pace of shipments from this key producing country has been slowing — now showing a 6% y/y increase compared with a 35% y/y rise back in December. ICE-monitored port inventories have dropped to a nearly two-month low at 2.283 million bags.
• The world’s two largest cocoa producers, Ghana and Ivory Coast, are facing drought conditions, despite heavy rains in some parts of West Africa (Nigeria, Cameroon). So far, downpours have been recorded in certain areas, including Cameroon, but their intensity has threatened bean quality as farmers have been unable to properly dry the harvest.
• Farmers in Ivory Coast, cited by Bloomberg, said that despite challenging weather, they are seeing improved conditions for so-called cherelles for the upcoming 2025–2026 season. In contrast, growers in Ghana report cherelle withering, while in Nigeria, heavy rains have disrupted industrial-scale bean drying. Conditions are somewhat better in the country’s southwest.
• Lindt & Spruengli (LISN.CH) in July cut its margin forecast due to a larger-than-expected decline in first-half 2025 chocolate sales. The world’s largest contract chocolate maker, Barry Callebaut (BARN.CH), also lowered its sales volume outlook again last month, citing persistently high cocoa prices (reporting nearly a 10% drop for March–May — the steepest quarterly decline in a decade).

Demand concerns are not weighing on futures, as the market expects a structural cocoa shortage to persist for longer. A lasting resolution to cocoa tree disease issues may require long-term, advanced technological solutions such as CRISPR gene-editing therapy (already being tested by Mars). Cameroon’s National Institute of Research and Development is working on weather-resistant hybrid cocoa varieties. Weather risk continues to reinforce a bullish market outlook.

COCOA (D1 interval)

Cocoa prices are testing the upper boundary of the “line of least resistance,” with strong support emerging around USD 7,700–8,000 per tonne. The next significant levels are in the USD 9,500–10,000 per tonne range, where the last rally stalled. It appears that a flat or slightly weaker cocoa demand profile is insufficient to cool the market given the challenging supply backdrop in key regions. A sharp drop in order volumes would likely be needed to bring about a sustained normalization in prices.

Source: xStation5

Key observations from the CoT report (data as of August 5)

Commitment of Traders (CFTC data) shows that producers/merchants and other commercial entities directly involved in cocoa hedging expect prices to fall, viewing current levels as attractive for selling.

• Large speculators — the so-called Managed Money category — expect prices to rise and are positioned in direct opposition to commercials, who have been under heavy pressure today. Speculators increased their long positions by 464 contracts last week, while adding only 125 to shorts. On the other side, commercial participants on ICE reduced both long and short positions, yet remain firmly net short.
• The largest speculators control around 25% of all cocoa short positions (held by four anonymous entities), compared with 15–17% on the long side — suggesting that major institutions are the dominant short sellers.
• Commercials are hedging future production against price declines, while speculators are betting on the continuation of the upward trend. Today’s cocoa rally likely reflects the liquidation of large commercial short positions and is boosting profits on the speculative long side.

Source: CFTC