Cocoa Prices Take a Hit, Analysts Weigh In
On November 18, 2022, a farmer was seen harvesting cocoa pods at a farm in Azagier, Ivory Coast.
This week, cocoa’s performance has hit a rough patch, as prices dropped to levels not seen in nearly two years. Investment banks are cautious, noting that the market is “extremely oversold.”
US cocoa futures experienced a decline of 1.4% on Wednesday, settling at around $6,090 per tonne. This marks a significant loss, with a 10% drop in value reported in the week ending October 3rd.
The changing market dynamics have been notable, particularly since cocoa had maintained high prices for the past couple of years. The US futures market peaked at $12,931 in mid-December, but now, it’s reached its lowest point since early 2024.
The factors influencing this downturn include challenging agricultural conditions, pest issues, and new export regulations in West Africa. While cacao prices had been on the rise, the recent week has seen a halt in that trend. This is partly due to the Ivory Coast and Ghana increasing the minimum prices that cacao farmers receive.
Investor Sentiment: “It’s Very Oversold”
In a report from City, analysts noted that asset managers are adopting “historically weak specs.” Their assessment highlighted that cocoa is showing “weak momentum” along with signs of overselling.
Further analysis from Societe General echoed these sentiments, labeling the cocoa contract traded in London as “oversold at an extreme rate.”
In a customer update, one analyst mentioned that “money managers have been net short this week,” indicating a significant rise in short positions since August 2022. They pointed out that while cacao is indeed vulnerable to short covering in New York, the situation is not as drastic as it is in London.
Short covering happens when investors buy back borrowed assets to close short positions, which can lead to profit or loss depending on price movements. When prices increase, traders rushing to close out shorts could trigger short squeezes, driving up asset prices.
JP Morgan strategists have recently observed signs of potential recovery in the market. They noted that after the price increases set by the governments of Ivory Coast and Ghana, the cocoa market saw a steep decline, resulting in one of the sharpest weekly losses of the year amid sales from new crop producers.
Nevertheless, analysts also mentioned that “futures and options open interest across the cocoa market have increased from historic lows” and are starting to return to levels seen back in February 2025, when US cocoa futures were consistently trading above $10,000.
