Cocoa Market Volatility: Is the Recent 20-Month Low a Buying Opportunity?

The cocoa market has entered a period of intense volatility, marked by a dramatic 13.81% monthly drop in prices as of October 2025, bringing New York cocoa futures to $6,442.71 per tonne-a 20-month low, according to the Financial Times. This sharp correction follows a two-year rally that pushed prices to record highs earlier in 2025, driven by supply constraints and surging demand. Now, with global production expectations rising and speculative positioning shifting, investors are debating whether this downturn signals a contrarian buying opportunity or a deeper bearish trend.

Commodity Cycle Context: From Rally to Oversupply

The cocoa market's recent trajectory reflects classic commodity cycle dynamics. Prices surged to $8,401.95 per metric ton in June 2025, fueled by aging cocoa trees, crop diseases, and climate disruptions in West Africa, according to a MarketMinute analysis. However, the cycle has now turned. Improved weather conditions in key producing regions, higher state-guaranteed prices for farmers, and a projected global surplus for the 2025–26 harvest have triggered a sharp correction. The International Cocoa Organization (ICCO) forecasts a 142,000-metric-ton surplus for the 2024/25 season, per Trading Economics, while Ecuador and West Africa's stronger output further pressures prices, as shown by YCharts.

This oversupply is compounded by weak demand. Chocolate manufacturers like Barry Callebaut and Lindt & Sprüngli have reported declining sales, particularly in Europe and Asia (as noted by the Financial Times), while fears of high cocoa prices and tariffs dampening consumer demand persist (as highlighted in the MarketMinute analysis). The result is a market in disbalance: supply is outpacing demand, and technical indicators reflect this. The RSI(14) for US cocoa stands at 42, signaling neutral momentum, while key resistance levels at $8,529 and support at $7,185 suggest a range-bound pattern, according to Barchart technical analysis.

Contrarian Signals: Oversold Conditions and Speculative Exhaustion

For contrarian investors, the recent collapse in cocoa prices raises compelling questions. As of October 2025, speculative positioning in London cocoa contracts has reached extreme short levels not seen since 2022, according to a CNBC report, with money managers holding historically weak long positions. Investment banks like Citi and Société Générale have warned that cocoa is "extremely oversold," creating conditions ripe for short covering and a potential rebound (the CNBC report).

Fund flows further underscore this divergence. While commercial entities (producers and processors) have hedged aggressively against high prices, speculative funds have reduced their net long positions by 6,500 lots in London and 2,000 lots in New York, according to an Expanamarkets report. This exodus, driven by rising volatility and trading costs, has reduced liquidity and widened bid-ask spreads, making the market more volatile but also creating opportunities for contrarians. Morningstar's "Buy the Unloved" strategy highlights that markets experiencing outflows-like cocoa-are often poised for a rebound, as discussed in analysis on Capital.com.

Risks and Realities: Supply-Side Constraints Remain

Despite these contrarian signals, long-term risks persist. Aging cocoa trees, crop diseases like black pod rot, and climate volatility in West Africa-accounting for 60% of global production-continue to constrain supply (reported by the Financial Times). The ICCO notes that even with improved harvests, cocoa prices are unlikely to return to pre-2023 levels due to these structural challenges (as described in the MarketMinute analysis). Additionally, port disruptions and weak grind data in Côte d'Ivoire raise concerns about a potential third consecutive poor harvest (cited in the Expanamarkets report).

Technical analysis also suggests caution. While the RSI(14) is neutral, cocoa futures remain below their 200-day moving average of $8,187 (per Barchart technical analysis), and the market's range-bound pattern indicates indecision. Analysts like J.P. Morgan project prices to hover around $6,000 into 2026 (Expanamarkets analysis), while others, including Wallet Investor, forecast a rebound to $9,450 by late 2026 (covered by Capital.com).

Is This a Buying Opportunity?

The cocoa market's current dynamics present a paradox: a short-term oversupply-driven bear market coexists with long-term supply-side vulnerabilities. For contrarian investors, the 20-month low offers a potential entry point, particularly for those willing to bet on short covering, speculative re-entry, or a supply-side recovery. However, the risks of further price declines-amid weak demand and improved global production-cannot be ignored.

A balanced approach might involve hedging against downside risks while capitalizing on the market's volatility. Investors could consider dollar-cost averaging into cocoa futures or options, leveraging the current oversold conditions without overexposing to near-term bearish trends. Meanwhile, structural challenges in West Africa suggest that any rebound may be limited, making cocoa a speculative rather than a core holding.