Dollar Weakness Fuels Cacao Rally Amid Mixed Supply Signals

Financial markets witnessed a significant repricing of cacao futures this week as a sharp plunge in the dollar index to a 4.25-month low triggered short-covering activity in commodity contracts. The rally, however, presents a complex picture with gains concentrated in New York while London cacao prices showed muted momentum amid currency headwinds from a surging British pound. On Monday, March ICE NY cacao advanced +68 points (+1.56%), while March ICE London cacao rose only +5 points (+0.16%), highlighting the divergent impact of currency movements on global pricing.

Dollar Index Collapse Triggers Short Covering in Cacao Futures

The weakness in the US dollar has become the primary driver of recent cacao price appreciation. A weaker dollar typically supports commodity prices denominated in dollars, as international buyers find cacao more affordable when converted back into their home currencies. This dynamic has sparked technical short-covering positions among traders who had been betting on further price declines. However, the gains in London are constrained by the British pound’s rally to a 4.25-year high, which increases the sterling-denominated cost of cacao purchases and offsets some of the benefits from dollar weakness. This currency cross-current illustrates how FX movements can have asymmetric effects across different trading venues for the same commodity.

West African Cacao Supply Concerns Meet Optimistic Harvest Prospects

The global cacao supply picture presents a study in contradictions. On one hand, West African producers have been restraining shipments in response to depressed prices, with Ivory Coast—the world’s dominant cacao producer—showing reduced export momentum. Cumulative shipping data through January 25, 2026, totaled 1.20 million metric tons (MMT), representing a -3.2% decline from 1.24 MMT in the corresponding period a year earlier. This pullback reflects farmer reluctance to sell into a weak market.

Countering these supply constraints, however, are reports of favorable growing conditions that are expected to boost the February-March harvest in West Africa. Tropical General Investments Group noted that cacao pod counts are running 7% above the five-year average, with chocolate maker Mondelez reporting pod sizes and health materially higher than last year’s crop. The Ivory Coast has already commenced its main harvest with farmers expressing optimism about crop quality. These mixed signals—reduced current shipments but promising future yields—suggest cacao supply dynamics remain in flux.

Chocolate Industry Demand Collapse Pressures Cacao Consumption

Perhaps the most concerning factor weighing on cacao prices has been the sharp deterioration in chocolate demand, as consumers continue to resist elevated chocolate prices. This demand shock has reverberated through the cacao supply chain. Barry Callebaut AG, the world’s largest industrial chocolate manufacturer, reported a startling -22% decline in cocoa division sales volume for the quarter ending November 30, explicitly attributing the weakness to “negative market demand and a prioritization of volume toward higher-return segments within cocoa.”

Grinding data from major consuming regions confirms this demand pressure:

• European Cocoa Association reported Q4 grindings fell -8.3% year-over-year to 304,470 MT, exceeding the -2.9% decline anticipated and marking the lowest fourth-quarter performance in 12 years
• Cocoa Association of Asia showed Q4 grindings declined -4.8% y/y to 197,022 MT
• National Confectioners Association reported North American Q4 grindings rose only a negligible +0.3% y/y to 103,117 MT

This global grinding slowdown reflects a fundamental consumption challenge: at current prices, chocolate has become a discretionary good that consumers are postponing rather than a necessity they must purchase. This psychological price resistance poses a serious headwind for cacao demand recovery.

Cacao Inventories Rebuild After Touching Historic Lows

After hitting a 10.25-month low of 1,626,105 bags on December 26, ICE-monitored cacao inventories held at US ports have begun rebounding—a development generally viewed as bearish for prices. Inventories climbed to a 2.25-month high of 1,766,142 bags by Monday. This inventory build suggests that near-term supply pressures may be easing, even as longer-term structural concerns persist.

The inventory rebuilding occurs against a backdrop of previously acute shortage conditions. Last Friday, New York cacao had plummeted to a 2-year nearest-futures low, while London cacao collapsed to a 2.25-year low amid worries about ample supplies and faltering demand. The International Cocoa Organization (ICCO) reported that 2024/25 global cacao stocks rose +4.2% year-over-year to 1.1 MMT, indicating a normalization of inventory levels after years of tight conditions.

Nigeria’s Smaller Cacao Harvest Provides a Countervailing Support

A brighter spot for cacao price support emerges from Nigeria, the world’s fifth-largest cacao producer, where output is contracting. Nigeria’s November cacao exports fell -7% year-over-year to 35,203 MT, and the country’s Cocoa Association has projected that 2025/26 production will decline -11% y/y to 305,000 MT from the prior year’s 344,000 MT projection. This Nigerian supply reduction provides a modest support mechanism for the global cacao balance, offsetting some of the abundant production elsewhere.

Long-Term Cacao Market Rebalancing Points to Historic Surplus Normalization

The broader cacao market has undergone a dramatic rebalancing following unprecedented shortage conditions. The International Cocoa Organization revealed that its November estimate for the 2024/25 global cacao surplus had been slashed to just 49,000 MT from a prior estimate of 142,000 MT, while production estimates were cut to 4.69 MMT from 4.84 MMT. This represents the first cacao surplus in four years—a watershed moment after ICCO had previously estimated a record -494,000 MT deficit in 2023/24, the most severe in over 60 years.

Rabobank similarly adjusted its 2025/26 global cacao surplus estimate downward to 250,000 MT from a November projection of 328,000 MT, suggesting more balanced supply-demand dynamics ahead. These consensus estimate revisions underscore that while cacao is no longer in acute shortage, neither is it facing destabilizing abundance. The market appears to be transitioning toward a new equilibrium where cacao prices will be determined increasingly by demand dynamics and less by pure shortage premium.

Conclusion: Cacao Prices Navigate Between Technical Support and Fundamental Headwinds

Current cacao price movements reflect a tug-of-war between technical factors supporting near-term appreciation—particularly dollar weakness and short-covering—and fundamental concerns about consumption and inventory normalization. While dollar weakness provides a helpful tailwind for cacao rallies, the underlying demand crisis in the chocolate industry poses a significant headwind that cannot be ignored. Investors monitoring cacao should watch closely for signs of chocolate consumption recovery, which would signal a more durable foundation for cacao prices beyond the currency-driven rally of recent trading sessions. The path for cacao prices ultimately hinges on whether chocolate makers and consumers can adapt to current price levels and restore demand growth.