Stocks, Ecuador and El Niño: Key Themes on the Cocoa Market Radar

After starting September on a high and with prices in London reaching their highest level in the past 12 months, cocoa futures underwent a correction, closing the week of September 4 at 6,188 USD/t in New York and 4,518 USD/t in London. Technical indicators, such as the Relative Strength Index (RSI), were already pointing to overbought conditions, signaling the possibility of corrections or consolidation in the short term. Despite this, moving averages remain aligned with a more bullish trend, although they indicate a loss of momentum compared to the movement observed in July.

An analysis of open interest (OI) suggests differing dynamics between the two markets during recent trading sessions. In New York, the decline in OI during the price retreat may indicate a liquidation of long positions and profit-taking by market participants. In London, the initial behavior was similar, however, the increase in open interest observed during the September 2 session, even as prices continued to fall, may suggest the establishment of new positions, possibly reinforcing bets on the continuation of the corrective move.

Macroeconomic factors continue to add volatility to the commodities market. The sharp rise in government bond yields in major global economies reflects concerns about inflation, geopolitical conflicts, and rising fiscal deficits, driving up financing costs. As a result, cocoa prices remain highly sensitive to any changes in fundamentals, which may contribute to market volatility.

Although recent movements have been driven primarily by technical and macroeconomic factors, in the absence of significant changes in fundamentals, certain news reports and market commentary may have helped sustain this momentum. Ivory Coast maintained the farmgate price at 1,200 CFA (approximately USD 2,127/t as of September 4) for the 26/27 season, which began in the first week of September, a figure 57.1% lower than the price set for the previous main crop year. The absence of a price adjustment, given the recent rise in market prices, may signal further caution about the outlook for the 26/27 cycle and uncertainties around expected production volume, which Hedgepoint currently estimates at a surplus of 111 kt.

Another point highlighted by the market was the role of inventories in a scenario of declining production. Certified stocks on the ICE exchanges in the United States and Europe remain above the levels observed during the same period last year, with particular emphasis on the significant volume available in the U.S. market. Together with other indicators, such as Ivory Coast port arrivals, which ended August 19.6% higher than in the same period of the previous crop year, these figures suggest a relatively more comfortable supply situation in the short term.

Nevertheless, it is important to interpret these indicators with caution, since factors such as quality, location, and the actual availability of these stock for consumption remain relevant. In addition, the stocks levels maintained by processors and end consumers in major grinding hubs, such as Europe, North America, and Asia, are also an important variable. Since there is little visibility regarding these volumes, assessing the actual availability of cocoa throughout the supply chain remains uncertain.

Still regarding certified stocks, one notable aspect is their composition by origin. When analyzing the recorded volumes, Ecuador’s share stands out, currently at its highest level since 2020. Although this trend has already been observed and discussed over the past few crops, it reinforces the country’s increasingly significant role in the global cocoa supply. This factor may prove particularly important during the 26/27 crop, although the potential impacts of El Niño on production remain a risk factor.

In this context, and possibly to anticipate any effects of the climate phenomenon, market reports suggest an acceleration in the country’s harvesting and export pace, a trend that appears to be partially reflected in certified stocks. Consequently, Ecuador’s export curve may shift over the course of the season, impacting the availability of beans on the international market. This factor could, to some extent, offset a potentially slower start to the main crop in the Ivory Coast and Ghana. Nevertheless, caution is warranted when interpreting these volumes. In addition to issues related to bean quality, it is also important to consider processors’ preferences. Currently, we estimate production of close to 600 kt for Ecuador, of which approximately 570 kt are expected to be available for export. The country remains a standout in the sector, with growth in planted area and investments in recent years.

On the other hand, we continue to monitor weather conditions, particularly below-average rainfall and episodes of high temperatures observed in some producing regions. In addition, we remain attentive to the evolution of El Niño, as increased rainfall toward the end of the year could affect the pace of the harvest, crop flowering, and the incidence of diseases, with potential repercussions on production and crop quality.

Current indicators point to a less tight supply scenario in the short term than that observed in recent cycles, but one that is still insufficient to eliminate the uncertainties surrounding the 26/27 crop year. Production trends in Ecuador, the start of the crop in West Africa, and stock levels throughout the supply chain will be key factors in determining whether the market is moving toward a more comfortable balance or will remain vulnerable to new supply shocks. In addition, developments in weather conditions will remain on the market’s radar, especially given the risks associated with El Niño. Although its potential impacts are more concentrated toward the end of 2026, any effects on crop development, the harvest, and the incidence of diseases could influence the supply outlook for the first half of 2027, which could put pressure on the market, particularly for the March and May 2027 contracts.

The cocoa market experienced a correction throughout the week, in a context primarily driven by technical and macroeconomic factors. Although indicators such as certified stocks and Ivory Coast port arrivals point to a more comfortable supply in the short term, uncertainties persist regarding the quality and availability of cocoa beans for the 26/27 season. At the same time, Ecuador continues to increase its share of the global supply, with a strong presence in certified stocks and favorable export prospects. Nevertheless, the market remains attentive to the weather risks associated with El Niño, which could affect the production and availability of beans in late 2026 and early 2027.