Why did cocoa prices fall to their lowest level in 20 months?

Cocoa

The global cocoa market is witnessing a sharp turn after a record rise that lasted for nearly two years, returning to levels not recorded in approximately 20 months.

This transformation comes after a period of violent fluctuations that pushed prices to historic peaks and burdened chocolate manufacturers around the world.

Questions are rising in economic circles about the future of this vital agricultural commodity, in light of a complex mix of factors that include weather changes, a decline in industrial demand, and shifts in speculative centers in global markets. Recent trading indicators show a clear lull in the momentum that fueled the previous rise.

This decline comes at a time when signs of gradual relief are beginning to appear in the main production regions of West Africa, with improving climate conditions and increasing expectations for a more abundant harvest season, redrawing the map of the balance of supply and demand in one of the most sensitive agricultural markets in the world.

According to a report by the British newspaper “Financial Times”:

• Cocoa prices fell to their lowest level in 20 months, ending a dramatic two-year rise that pushed the market to record levels and put pressure on chocolate manufacturers around the world.
• The price of cocoa in New York this week was about $6,150 a ton, down from a December peak of more than $12,000.
• At the same time, cocoa prices in London, which nearly tripled in the first months of last year, have fallen by about 58 percent from their peak in April 2024, which reached $4,262.

Analysts say that this decline reflects a decline in consumer demand as a result of higher prices, in addition to expectations of a better harvest season due to improved weather conditions and higher government-guaranteed prices in West Africa. In addition, speculators who were previously taking advantage of the rally have recently liquidated their positions, and many are now betting on lower prices.

The report quoted Rabobank commodities analyst Oran van Dort as saying:

• “We saw huge increases that were not sustainable over the long term.”
• Prices had been falling for most of the year, “but especially since mid-August, they have been on a gradual downward trend.”

The sale marks a sharp decline after a 2022 supply shock in Ivory Coast and Ghana, which together produce about 60 percent of the world’s cocoa. Drought, disease and years of underinvestment by farmers unable to buy fertilizer or replace old trees have led to a sharp rise in futures prices.

Fears of supply shortages are now beginning to fade; Rains have returned after last year’s unusually early dry season, reducing the risk of another crop failure.

Meteorologists expect that the 2025-2026 harvest, which began on October 1, will produce a surplus in supply that exceeds global demand, according to the newspaper’s report.

Increased cocoa prices outpace all commodities

The most prominent reasons

For his part, international economic relations expert, Muhammad Al-Khafaji, tells the “Eqtisad Sky News Arabia” website:

Global cocoa markets are witnessing a noticeable decline; Prices have now lost more than half their value compared to last December’s levels, a direct reflection of the decline in demand, improved production, and the decline of speculation.

Al-Khafaji attributes this sharp decline to several main factors, including:

• Industrial demand for cocoa has declined (due to rising prices), as grinding operations – which are the main indicator of chocolate factory consumption – have declined in Europe and Asia, and major companies such as Mars, Nestlé and Lindt have reduced their production or package sizes after a significant rise in raw material costs last year.
• Production conditions have improved in West Africa after two years of drought, with major countries such as Ivory Coast seeing an increase in production and governments raising guaranteed prices for farmers to stimulate official exports, amid expectations that the 2025-2026 season will achieve a slight surplus compared to previous years.
• Speculators withdrew from the market after the wave of record gains, which led to a decline in futures contracts on global commodity exchanges as liquidity declined and risk appetite weakened.

Al-Khafaji concludes his speech by noting that estimates issued by international financial institutions suggest that prices will stabilize within a medium range between $5,000 and $7,000 per ton until the end of the year, with the possibility of a gradual recovery during 2026 if global demand returns to growth.

Cocoa prices rise 180% in 2024 and outperform Bitcoin

Weak momentum

A report by the American network CNBC quoted Citibank analysts as saying in a note that money managers are currently taking one of the weakest speculative positions in the history of the cocoa market, explaining that the data indicates weak momentum and that the commodity is showing signs of excessive selling.

In the same context, Société Générale analysts confirmed that cocoa contracts traded on the London Stock Exchange have become in a state of “extremely oversold,” adding in a note to clients that money managers this week turned to net short positions (a bet on the downside), and that their short positions reached the highest level since August 2022, which makes the market highly vulnerable to operations to cover short positions.

They pointed out that cocoa on the New York Stock Exchange faces the same situation in terms of exposure to covering short positions, although not as severe as contracts traded in London.

Covering short positions means that investors buy the asset that they had previously sold short to close their positions, which is a process that may lead to making a profit or loss, but if prices rise, the acceleration of purchases to cover those positions may create what is known as purchasing pressure, which pushes prices to rise further.

For their part, strategists at JP Morgan wrote in a note this week that signs of recovery have already begun to appear, explaining that cocoa markets witnessed a sharp decline during the week after the governments of Ivory Coast and Ghana raised purchasing prices from farmers, which caused one of the largest weekly losses this year following the launch of sales of the new crop.

However, they indicated, on the other hand, that the total open contracts in contracts and options in the cocoa market began to rise from historically low levels to return to levels seen in February 2025, the month in which cocoa futures in the United States exceeded the level of ten thousand dollars per ton in some periods.

By knockout…chocolate wins over gold

Improved climatic conditions

In addition, the economist, Yassin Ahmed, told the “Eqtisad Sky News Arabia” website that the recent decline in cocoa prices is mainly due to increased production in producing countries as a result of improved climate and favorable agricultural conditions during the recent period.

He added that several factors contributed to the decline in prices, most notably the improvement in climate conditions in the main agricultural regions, which led to an increase in yields and an increase in global supply, in exchange for a decline in demand, which put clear downward pressure on prices.

It also indicates that prior expectations of a decline in prices led many investors and speculators to be patient in purchasing, which deepened the pace of decline, while the rise in agricultural production costs in earlier stages, even if it temporarily led to higher prices, weakened demand later and contributed to the return of prices to decline.