Cocoa Market Quotes Rise as Dollar Weakness Triggers Short-Covering Rally

Cocoa futures experienced a notable rebound on Thursday as a weakening dollar sparked short position covering in the market. March ICE NY cocoa settled +27 points (+0.65%), while March ICE London cocoa advanced +29 points (+1.01%). This relief bounce, however, masks deeper structural challenges that continue to weigh on the commodity over the medium and long term.

The immediate catalyst for the price recovery was the softer greenback, which prompted traders to unwind some bearish short bets that had accumulated amid recent weakness. Though described as “mild,” this short covering activity provided enough lift to push quotes higher after an extended decline. London cocoa had posted a 2.25-year low on Wednesday, while NY cocoa hit a 2-year low the previous Friday, reflecting the sharp selloff that preceded Thursday’s rebound.

Dollar Retreat and Short Covering Buoy Futures in Near Term

The inverse relationship between the US dollar and commodity prices played the key supporting role in Thursday’s rally. As the dollar retreated, market participants who held short positions rushed to cover, providing buying pressure that lifted cocoa quotes. This type of short-covering bounce is common in commodities when currency dynamics shift suddenly, even if underlying supply-demand fundamentals remain unfavorable.

However, this near-term support masks what traders view as temporary relief in a persistently weak market. The dollar-driven rally demonstrates how technical factors and currency moves can momentarily override bearish supply-side signals, though they rarely reverse the broader structural trend for long.

Global Cocoa Surplus Forecasts Keep Long-Term Pressure on Market Quotes

Despite the short-term bounce in cocoa prices, abundant global supplies continue to dominate the fundamental outlook. StoneX forecasted a global cocoa surplus of 287,000 MT for the 2025/26 season, with an additional surplus of 267,000 MT projected for 2026/27. These surplus projections suggest that supply pressures will remain a headwind for cocoa quotes well into the future.

The International Cocoa Organization (ICCO) reinforced concerns about oversupply when it reported that global cocoa stocks rose 4.2% year-over-year to 1.1 million metric tons. This buildup of inventories, combined with forecasted surpluses, creates an environment where price recovery is likely to face repeated resistance.

The scale of the turnaround is striking: ICCO’s earlier projection showed only a 49,000 MT surplus for 2024/25, marking the first surplus in four years after a record deficit of 494,000 MT in 2023/24. Yet even with modest surplus expectations, the market has proven unable to sustain price strength.

Chocolate Demand Remains Weak Across Major Consuming Regions

Weak demand across the global chocolate supply chain has been a primary factor keeping cocoa quotes under pressure. Consumers continue to resist elevated chocolate prices, and this price resistance is visible in production figures across major regions.

Barry Callebaut AG, the world’s largest bulk chocolate maker, reported a -22% decline in sales volume within its cocoa division for the quarter ending November 30. The company cited “negative market demand and a prioritization of volume toward higher-return segments within cocoa” as key reasons for the pullback.

Regional grindings data underscores the demand weakness:

• European Cocoa Grindings: The European Cocoa Association reported that Q4 European cocoa grindings fell -8.3% year-over-year to 304,470 MT, significantly worse than the anticipated -2.9% decline and marking the lowest Q4 figure in 12 years.

• Asian Cocoa Grindings: The Cocoa Association of Asia reported that Q4 Asian cocoa grindings declined -4.8% year-over-year to 197,022 MT, indicating softening demand in Asia as well.

• North American Cocoa Grindings: The National Confectioners Association reported that Q4 North American cocoa grindings rose only +0.3% year-over-year to 103,117 MT, showing minimal growth and suggesting consumer demand challenges in the region.

Across all major consuming regions, the grindings data points to a sustained demand problem that is unlikely to reverse quickly, especially given consumer sensitivity to chocolate prices.

West Africa Harvest and Nigeria Output Shape Short-Term Dynamics

On the supply side, West African producing regions—which account for the majority of global cocoa production—are experiencing favorable growing conditions that could boost near-term harvests.

Tropical General Investments Group reported that favorable weather in West Africa is expected to enhance the February-March cocoa harvest in Ivory Coast and Ghana, as farmers report larger and healthier pods compared to the prior year. Chocolate maker Mondelez noted that the latest cocoa pod count in West Africa stands 7% above the five-year average and is materially higher than last year’s crop.

Harvest of Ivory Coast’s main crop has begun, with farmers expressing optimism about the crop’s quality. However, the Ivory Coast—the world’s largest cocoa producer—has also seen farmers hold back supplies due to depressed prices. Cumulative data through January 25, 2026, showed Ivory Coast farmers shipped 1.20 million MT of cocoa to ports in the current marketing year (October 1, 2025 through January 25, 2026), down -3.2% from 1.24 million MT in the same period a year earlier.

Nigeria, the world’s fifth-largest cocoa producer, presents a different picture. Nigeria’s November cocoa exports fell -7% year-over-year to 35,203 MT. Nigeria’s Cocoa Association projects that 2025/26 cocoa production will fall -11% year-over-year to 305,000 MT from a projected 344,000 MT in 2024/25. Smaller Nigerian supplies could provide some support for cocoa quotes, but this regional constraint is unlikely to offset the broader global surplus outlook.

Rising Inventories and Market Sentiment Complicate the Rally

On the technical side, cocoa inventories held in US ports have rebounded sharply, a bearish factor for sustained price strength. Since hitting a 10.5-month low of 1,626,105 bags on December 26, ICE-monitored inventories have climbed to a 2.5-month high of 1,775,219 bags as of Thursday. This inventory buildup suggests that any short covering rally may face fresh selling pressure as traders assess elevated stock levels.

In summary, while the short-covering bounce in cocoa quotes on Thursday provided temporary relief from weeks of decline, the structural headwinds remain formidable. A weaker dollar may continue to offer tactical support, but global supply forecasts, weak demand indicators across consuming regions, and rising inventories all suggest that cocoa prices face significant resistance to any meaningful recovery. The rebound serves as a reminder that even in bear markets, technical factors and currency dynamics can drive short-term rallies—but they rarely alter the fundamental path of least resistance for the asset.