🍫Cocoa tests $5,000 support

While global cocoa prices have retreated significantly from their 2024 record peaks, the chocolate industry remains mired in difficulty. Global demand shows signs of structural weakness, and processors are struggling to maintain profitability while working through historically expensive inventories.

A Sharp Price Correction Since hitting all-time highs in December 2024, cocoa futures have lost more than half of their value. Recent volatility has intensified, partly due to the rebalancing of commodity indexes. Although a short-term influx of capital into the futures market was expected, funds likely spread their exposure over a longer period. Today, prices are down over 3%, briefly dipping below the $5,000 per ton mark—the lowest level since late November. Despite this significant sell-off, the commodity remains expensive by historical standards, with prices still substantially higher than those seen four to five years ago.

Demand Destruction Hits Processing The primary headwind for a price recovery is so-called "demand destruction". Last year’s record prices forced consumers to rein in chocolate purchases and prompted manufacturers to reformulate recipes, opting for cheaper substitutes and increased fillers, such as nuts.

These effects are evident in cocoa grinding data—a key proxy for demand:

• Europe: Fourth-quarter 2025 grindings are estimated to have fallen roughly 3% year-on-year
• Asia: The region is expected to see the steepest decline, estimated at approximately 12%.
• North America: The only region projected to see a slight increase (+1.2%), primarily due to the addition of two new processing plants.

European data will be released on the morning of January 15, followed by U.S. figures later that afternoon (CET). Asian data is due on Friday, January 16. Given the downbeat expectations, markets appear to be pricing in the weakness ahead of the official releases. Experts note that European processing margins fell below break-even as early as August and hit record lows in December, forcing firms to curb investment and production rates.

Crisis at the Source: Ivory Coast The price slump in New York and London has triggered a crisis for the world’s top producer, Ivory Coast. Local exporters are caught in a pincer move between state-mandated farmgate prices and tumbling international benchmarks.

The current situation is critical:

• The farmgate price stands at 2,800 CFA francs per kilogram (approx. $4.97).
• With market prices hovering around $5,000 per ton, exporter margins have effectively vanished, leading to liquidity issues and port congestion.

Traders are appealing to the government for subsidies or tax relief to sustain purchases from farmers. However, the industry regulator (CCC) has categorically rejected proposals to lower the farmgate price.

When Will Relief Reach Retail Shelves? Despite the collapse in raw material costs, consumers should not expect immediate price cuts for confectionery. Most beans processed in Q4 2025 were purchased before the sharp price decline. Market observers predict that retail price relief will only manifest in the second half of 2026. Until then, thin margins and underutilized capacity will continue to weigh on the global cocoa market. Furthermore, it is widely believed that the ultra-low prices seen during the pandemic era are unlikely to return.

Technical Outlook Prices have dropped toward the $5,000 level, effectively invalidating a potential inverse Head and Shoulders (oRGR) formation. However, if the price holds above November lows, a double-bottom formation could emerge, with a neckline near $6,300. It remains possible that weak grinding data could act as a contrarian catalyst, similar to the price action seen in October, when the market saw a temporary upward correction within a long-term bearish trend.