West African Cocoa Harvest Outlook Pressures Futures Markets as Exporters Execute Hedging Strategy

Cocoa futures markets experienced significant downward pressure on Friday as producers moved to lock in gains from Thursday’s rally. March NY cocoa dropped 732 points (-12.05%) to reach a 6-week low, while March London cocoa fell 452 points (-10.35%) to touch a 1-month low. The sharp retreat reflected strategic hedging activity by exporters who capitalized on favorable price levels earlier in the week to establish short positions ahead of the West African harvest season.

Market Drivers Behind Friday’s Decline

Exporters took advantage of Thursday’s momentum—when cocoa futures climbed to their strongest level in a week on anticipated commodity index rebalancing—to secure hedging positions before the supply surge. This tactical shift gained momentum as the dollar index rallied to a 4-week peak, prompting further liquidation of cocoa holdings.

Peak Trading Research projects that upcoming commodity index rebalancing could trigger approximately 37,000 cocoa futures contract purchases, representing nearly 31% of aggregate open interest. However, this bullish catalyst failed to overcome the prevailing bearish sentiment driven by supply expectations.

Supply Outlook Shifts Market Sentiment

Tropical General Investments Group reported that West African growing conditions are exceptionally favorable, with farmers in Ivory Coast and Ghana observing larger and healthier cocoa pods compared to last year’s equivalent period. Chocolate manufacturer Mondelez noted that current pod counts in West Africa run 7% above the five-year average and “materially higher” than the previous season’s production.

The Ivory Coast, representing the world’s largest cocoa production region, has commenced harvesting its main crop season. Recent shipment data reveals cumulative cocoa port exports of 1.073 MMT through January 4—a 3.3% decline from 1.11 MMT in the corresponding year-ago period. Despite these lower export figures providing some price support, expectations of ample supplies from the broader harvest weighed heavily on sentiment.

Structural Support Factors Prove Limited

Bullish factors exist but have struggled to gain traction. The International Cocoa Organization recently slashed its 2024/25 global surplus forecast to 49,000 MT from 142,000 MT in November, while reducing production estimates to 4.69 MMT from 4.84 MMT. This marks the first global surplus in four years, following a record 494,000 MT deficit in 2023/24.

Cocoa’s addition to the Bloomberg Commodity Index starting this month could attract $2 billion in NY cocoa buying activity according to Citigroup estimates. Additionally, inventory conditions showed tightening pressure—ICE-monitored US port stocks hit a 9.75-month low of 1,626,105 bags in late December, though levels recovered to 1,660,515 bags by Friday’s close.

Headwinds Outweigh Support

Broader pressures continue limiting upside potential. The European Parliament’s November approval of a one-year delay to the deforestation law (EUDR) allows EU countries continued agricultural imports from deforestation-prone regions, maintaining ample cocoa availability. Global demand weakness adds to bearish conditions, with Q3 Asian cocoa grindings declining 17% year-over-year to 183,413 MT—the smallest third-quarter output in 9 years. European grindings fell 4.8% year-over-year to 337,353 MT, the weakest Q3 in a decade.

Production challenges in Nigeria, the world’s fifth-largest cocoa producer, offer limited support. The Nigerian Cocoa Association projects 2025/26 production will fall 11% year-over-year to 305,000 MT, though September exports remained flat at 14,511 MT.

The market’s Friday reversal demonstrates how tactical hedging by exporters, combined with abundance signals from major producing regions, continues to dominate price direction despite structural supply tightness and upcoming index-related rebalancing support.