In my Q3 soft commodities report on Barchart, I highlighted that cocoa prices edged 0.90% lower in Q3 but were over 84% higher in the first nine months of this year. December cocoa futures on the Intercontinental Exchange settled Q3 at $7,725 per ton. Nearby December cocoa prices reached a high of $5,104 in 1977 and moved to over $11,700 per ton in 2024 before correcting. At the $8,689 level in November 2024, cocoa remains higher than the pre-2024 peak but below this year’s peak. Many factors that lifted cocoa futures to over double the 1977 high remain issues that could keep prices elevated into 2025.
Cocoa soars in 2024
Cocoa was the best-performing commodity over the first three quarters of 2024.
The long-term chart dating back sixty-five years to 1959 shows that the pre-2024 high was $5,105 per ton in 1977. After trading below that level for forty-six years, cocoa futures took off on the upside in 2024, reaching an over $11,700 per ton peak, over double the 1977 high.
West African supply issues pushed prices higher
A March 2024 Reuters article highlighted the situation in West Africa that led to cocoa’s price explosion. Crop disease, adverse weather, climate conditions, and overall production declines have led to the supply shortages that lit a bullish fuse under the cocoa futures market. The article pointed to Ghana’s lowest output in two decades and the Ivory Coast’s lowest production in eight years. The Ivory Coast is the world’s leading cocoa-producing country.
The chart illustrates the significant production declines during the 2023/2024 crop year.
The forward curve indicates ongoing supply concerns
Backwardation in a commodity’s forward curve is a condition where prices for nearby delivery are higher than those for deferred delivery. Backwardation indicates nearby supply concerns.
The forward curve for ICE cocoa futures shows declining prices from December 2024 through September 2026 delivery contracts. Lower prices for deferred delivery assume that higher nearby prices will entice producers to increase output, but in the cocoa market, crop disease and the weather are critical factors that will determine if production can return to the pre-2023/2024 crop year levels. Cocoa production requires an equatorial and tropical climate, making West Africa the perfect area for output. Prices could remain elevated over the coming years if weather and crop issues persist. The September 2026 price remains near the 1977 previous all-time high.
Critical technical levels to watch in late 2024 and 2025
We must return to 1977 to pinpoint the first technical support level for cocoa futures at the previous $5,104 per ton high. Technical resistance remains at the 2024 over $11,700 per ton high.
The monthly chart of the continuous ICE cocoa futures contract shows the extended consolidating period from 2005 through 2023 that kept cocoa prices between $1,328 and $3,775 per ton. The soft commodity broke out of the consolidation band in September 2023 and exploded higher in 2024.
While nearby prices have corrected 25.9% from $11,722 in April 2024 to the $8,689 level in November 2024, cocoa remains at a record level compared to pre-2024 levels.
Expect volatility- There are no cocoa ETF products
Ongoing supply concerns, the forward curve with the most deferred price near the 1977 high, and prices at over $8,600 per ton in late 2024 suggest that 2025 will be a highly volatile year for the cocoa futures arena. The leading chocolate manufacturers will continue to struggle to meet their input requirements as West Africa struggles to produce at the levels seen before the 2023/2024 crop year. Expect wide price swings in the cocoa futures market over the coming months and throughout 2025.
While explosive price action in many commodities tends to lead to implosive events, any significant decline from the current level depends on increased production. Producing cocoa beans requires an equatorial climate that limits the potential for new output. Therefore, we could see higher cocoa prices for longer.
The only route for a risk position in the volatile cocoa market is the futures and futures options on the Intercontinental Exchange. There are no ETF or ETN products that track cocoa prices. Unfortunately, the former NIB ETN delisting in June 2023 came before the price exploded higher.
The cocoa futures market is liquid, with nearly 128,000 contracts of open interest. On average, over 20,000 contracts change hands daily. While cocoa futures have declined from the 2024 high, elevated cocoa prices could remain through the coming year, and the explosive cocoa rally of 2024 may not be over in 2025.
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