Cocoa, the leading soft commodity in 2024, settled Q3 at $7,722 per ton. In my November 15 Barchart article on cocoa futures, I concluded:

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. 

The nearby December ICE cocoa futures contract was trading at $8,689 per ton on November 15. The March contract was over $2,400 higher in mid-December at over $11,100 per ton. Cocoa remains well above the pre-2024 record high as we head into 2025. 

A very bullish year for cocoa futures

ICE cocoa bean futures for March 2025 delivery settled at $3,817 per ton on December 29, 2023. 

 The daily chart highlights the parabolic rally in cocoa futures that took the price to over the $11,100 per ton level in December 2024. The longer-term chart illustrates 2024’s explosive rally. 

The quarterly continuous futures contract shows that cocoa futures record peak before 2024 was $5,104 per ton in 1977. Cocoa blew through that level in February 2024 as a hot knife goes through butter and kept rising, reaching an over $11,720 per ton high in April 2024. At over $11,100 per ton in December, cocoa’s price remains in pre-2024 record territory and is heading for a challenge of the April peak. 

The supply concerns persist

Cocoa beans require an equatorial tropical climate, making the West African countries of The Ivory Coast, Ghana, Nigeria, and Cameroon the world’s leading producers. The Ivory Coast and Ghana contribute around 60% of the world’s annual cocoa bean supplies. Adverse weather conditions have decimated the West African crops in 2024, sending prices soaring to record levels as chocolate manufacturers scramble for supplies. 

Chocolate makers like Barry Callebaut have been working with the West African countries to improve cocoa output. However, the price action tells us that supply issues persist in late 2024. 

The trend remains our best friend- Cyclicality could cause downdrafts

The trend in any market is always a trader or investor’s best friend, and it remains bullish in cocoa. However, as we witnessed in the cocoa futures arena in 2024, parabolic rallies often lead to price plunges. 

Commodities are cyclical assets. Prices tend to fall to levels where producers reduce output; inventories begin to decline; demand increases and prices find bottoms. Conversely, they often rise to levels where producers scramble to increase production; inventories increase, demand decreases, and prices find tops. Barry Callebaut and other leading chocolate companies relying on West African cocoa supplies are diligently working with the governments to make sure that the 2024 price action does not repeat in the coming years. A first step could be to repeal 2018 legislation prohibiting farmers from replanting cocoa trees. The replanting laws occurred as the governments were concerned about production expansion and lower prices. In 2024, they face the opposite situation. 

High prices mean high volatility- Buying on corrections has been optimal so far

The parabolic move in the cocoa futures market has led to wild price swings. Quarterly historical volatility in cocoa futures ranged from 5.83% to 43.64% from 1982 through early 2024. The price variance metric jumped to over 80% over the past months. 

The daily chart of the March 2025 futures contract shows coca rallied from late 2023 through April 2024. After a correction from $8,984 in April to $5,383 per ton in May, cocoa futures consolidated with a bullish bias above the 1977 high between $5,525 and $7,336 per ton from July through October. In mid-November, cocoa broke out above the July peak, rising to over $9,000 per ton. While buying on corrections has been optimal in 2024, the parabolic nature of the rally and the power of commodity cyclicality could make buying on price corrections dangerous, as a selloff has the potential to become carnage on the downside. 

No cocoa ETF or ETN products- Futures are the only route for participation

Volatility creates a paradise of long and short opportunities for nimble and flexible traders with their fingers on the pulse of markets experiencing high price variance. The former NIB ETN product that tracked ICE cocoa prices stopped trading in June 2023, leaving the only way to participate in the volatile cocoa market the ICE futures and futures options. 

A cocoa futures contract containing ten metric tons has a $11,100 value at $111,000 per ton. The original and maintenance margin levels are $11,154/$10,140 per contract. Controlling one cocoa futures contract requires a 10.05% good faith deposit at the current price, and if equity falls below $10,140, the market participants will experience a margin call. 

Commodity cyclicality tells us the odds favor lower cocoa prices in 2025. However, a price correction depends on increased West African output, which depends on the weather and other factors in a region where political stability can be problematic. Expect high volatility in the cocoa market to continue over the coming months.