Cocoa futures were climbing again in the second half of April after dropping from the highs we saw in the market over the winter months, when the spot price broker $12,500 per ton. Despite falling to around the $8000/T level in March, we have seen some buying activity in recent weeks, with cocoa futures breaking above that to hit $9486 in recent days.
Much of the recent long side activity has been driven by supply concerns in West Africa, particularly in the Ivory Coast, which remains a dominant cocoa producer, and which has seen an 11.3% year-on-year increase export increase. Cocoa dealers are also reporting unexpectedly strong demand from Europe, North America and Asia.
Significant volatility in cocoa futures
Q1 saw significant volatility in cocoa prices with implied volatility for cocoa well above pre-2024 levels, although lower than the levels we saw cocoa last year, when coca was the best performing commodity trade. Global inventories are reported as tight after three years of deficit in the market, and that is unlikely to go away soon.
The bull market in cocoa is creating stresses for big food groups, however. These are buyers of cocoa who could traditionally protect themselves from high price rises using futures. They are now suffering as sustained high prices in cocoa are stripping that security blanket away.
Part of the problem is that the cocoa sector is continuing to see stocks depleting, despite forecasts of a potentially better harvest later this year. But it is becoming difficult to navigate cocoa’s treacherous waters, as there are fears higher prices could undermine demand for chocolate globally.
Where is the cocoa price going in 2H 2025?
It is becoming tougher for traders and cocoa grinders to get a handle on where the cocoa price should be in 2H of this year, and that is affecting the futures market. What has also made the market even more volatile is the fact that open interest and traded volumes have been trending lower.
Average daily traded volumes have held up relatively better than open interest, which is reflected in the average daily volume/ average daily open interest ratio, which has been trending higher since the end of 2024. This dynamic only adds to the volatility in the market.
Cocoa analysts are saying that the larger areas of land that have been deforested to create further cocoa production will start to produce within the next 24 months. This could apply downward pressure on cocoa futures. But there are other factors at work here too – cocoa buyers fear changing weather patterns, which could still adversely affect this year’s harvest.
“While we believe prices have further room to move lower, the market is facing supply risks. In addition, low stocks mean prices will likely remain volatile,” said cocoa analysts ING in a note to traders. This remains a very tight commodity market.
ING said it was expecting prices to trend lower this year, thanks in part to a small surplus in the cocoa market. But it warned traders that cocoa was likely to remain volatile.
According to analysts, a factor behind reduced cocoa market participation would be that physical longs are reluctant to hedge (sell futures) given the broader strength we have seen in the market in recent years. Obviously, selling futures into a market that has been trending higher can create liquidity issues for market participants, who will face larger margin calls.
