Cocoa Pulls Back While Market Monitors El Niño Threat

After a period of consolidation, cocoa futures closed the week of September 18 at 5,327 USD/t in New York and 3,934 GBP/t in London, following the start of a corrective move during Thursday's session. In the absence of significant changes in market fundamentals, recent price action appears to have been driven mainly by technical factors. Although open interest movements accompanied part of the correction, the observed changes were relatively limited and do not point to a clear shift in market positioning. In addition, the rollover of positions from the September contract to December may be influencing open interest figures, warranting caution when interpreting positioning data.

At the same time, commodity prices fell across the board on September 17 after the Federal Reserve adopted a more hawkish tone than the market had expected. The prospect of higher interest rates strengthened the dollar and reduced risk appetite, favoring profit-taking moves across various markets. In this context, the recent decline in cocoa prices may reflect a combination of technical adjustments, market participants’ repositioning ahead of contract expirations, and the macroeconomic environment.

Among the factors shaping the global cocoa balance, weather remains one of the key variables under close observation, particularly in West Africa, the world's main producing region, as well as the potential impacts of El Niño on production. Market concerns regarding below-average rainfall in West Africa eased somewhat over the past week. Ghana and Nigeria have already recorded more favorable precipitation, while rainfall in Ivory Coast remains below average, with above-normal precipitation expected over the coming days.

Weather models indicate above-average rainfall across the main producing regions over the next 14 days, a scenario that should generally benefit crop development. Nevertheless, the rainfall forecast for some areas is considered excessive and could hinder pollination while also affecting part of the flowering process.

Part of the recent correction may also have been supported by market reports pointing to a strong pace of cocoa exports from Ecuador in August. This reinforces Ecuador's importance to global bean supply and is consistent with our estimates, which indicate exports of approximately 55.4 thousand tonnes during the month. The performance is also in line with indications of stronger harvesting and selling activity, as producers seek to reduce their exposure to uncertainties surrounding the potential impacts of El Niño in the coming months.

In addition to weather conditions and export flows from major producing countries, certified stocks remain an important indicator of near-term bean availability. In the United States, inventories remain at elevated levels, while European certified stocks have returned to near-average levels following the recovery observed in recent months. It is worth noting that, as the physical delivery period approaches, adjustments related to contract expirations may cause fluctuations in certified volumes, such as the 21.5% drop observed today in European inventories. Overall, the cocoa market remains highly sensitive to changes in supply and demand expectations. Given the uncertainties surrounding weather conditions in West Africa, the evolution of El Niño, export performance, and inventory dynamics, volatility is likely to remain elevated in the coming weeks, with prices responding quickly to new information affecting any of these factors.

Following a period of consolidation, cocoa prices entered a correction phase. Despite the recent improvement in West African weather conditions, market attention remains focused on the potential effects of El Niño on the upcoming crop. At the same time, reports of strong exports from Ecuador reinforce the perception of comfortable near-term availability, while certified inventories remain relatively supportive. Nevertheless, the combination of weather-related uncertainty, export flows, inventory dynamics, and ongoing market adjustments suggests that volatility is likely to remain elevated in the weeks ahead.