Cocoa prices plunge to 20-month low — but investment banks warn ‘extreme’ sell-off could create problems

Cocoa’s winning streak is faltering after prices fell to an almost two-year low this week — but investment banks are warning the commodity has become “extremely oversold.”

U.S. cocoa futures for December delivery moved 1.4% lower on Wednesday to trade at around $6,090 a ton, extending losses that saw the contracts lose 10% of their value in the week ended Oct. 3.

It marked a change in trajectory for cocoa, which has seen prices remain elevated for the past two years. U.S. futures hit a high of $12,931 in mid-December — but this week, prices touched on their lowest levels since early 2024.

Challenging agricultural conditions, pest infestations and West African export controls have pushed the price of cocoa higher in recent years — but the upward trajectory came to a halt over the past week as governments in the Ivory Coast and Ghana hiked the minimum price payable to cocoa farmers.  

In a Monday note, analysts at investment bank Citi said money managers were taking a “historically weak spec [speculative] positioning” on cocoa — adding that their data showed “weak momentum” and an “oversold signal” for the commodity.  

Analysts at Societe Generale also said on Monday that cocoa contracts traded in London had been “extremely oversold.”

“Money managers turned net short this week,” they said in a note to clients. “[Cocoa is] extremely vulnerable to short covering … Money managers’ short positioning [has] increased to the highest level since August 2022.”

In New York, they added, cocoa is also vulnerable to short covering, although not to the same extremes as London contracts.

Short covering happens when investors buy back a borrowed asset to close out short positions — which can lead to a profit or a loss. If prices rise, a rush to close short positions can lead to a short squeeze where traders pile back into the asset, pushing prices higher.

J.P. Morgan strategists wrote in a note this week that signs of a recovery were already emerging.

“Cocoa markets sank sharply through the week after farmgate prices were raised by the governments in the Ivory Coast and Ghana, driving one of the sharpest weekly losses of the year … following new crop producer sales,” they said.

But they added: “Aggregate futures and options open interest across the cocoa market is rising off historic lows back to levels of February 2025.”

Back in February, U.S. cocoa futures periodically traded above the $10,000 mark.