Cocoa price melts down amid stronger US dollar, rising inventories

Cocoa price is set for its second week of losses amid a stronger US dollar and rising inventories. However, concerns over the El Nino weather pattern and low cherelle formation is offering support. 

Cocoa price edges lower as US dollar strengthens 

Cocoa price has been under selling pressure since the start of the week. To begin with, a stronger US dollar has rendered the agricultural asset more expensive for buyers holding foreign currencies. Amid the conflict-driven uncertainties, the dollar index extended its gains to a 6-week high on Thursday. 

While it has pulled back slightly, it has held steady above the previously strong resistance zone of $99. Indeed, the formation of the bullish golden cross pattern earlier in the week points to further gains. Similar to other dollar-priced assets, cocoa price tends to move inversely to the US dollar.  

At the same time, rising ICE inventories are exerting further selling pressure on cocoa price. Improving weather conditions in West Africa, which accounts for about 70% of the global cocoa supply, have shifted the outlook from a deficit to a surplus. 

On Thursday, the ICE inventories rose to the highest level in close to two years. Additionally, cocoa delivery estimates from the Ivory Coast rose from the previous forecast of 1.8  to 1.9 metric tonnes to 2.2 metric tonnes for the 2025/26 season. Further data shows that farmers from this top cocoa producer have shipped 1.61 metric tonnes in the current marketing year running from October 2025 to mid-May 2026. This is an increase of close to 2% from a similar period a year ago. 

Even with these bearish factors, cocoa price is finding support in the persistent concerns of the El Nino weather pattern. According to the US National Oceanic and Atmospheric Administration (NOAA), there is an 82% probability and 62% probability for El Nino and Super Nino to occur in West Africa respectively. This weather pattern is set to cause warmer and drier conditions that will impact cocoa production. 

Besides, recent surveys show a channel formation that is below average. This is expected to impact the main harvest, which starts in October. 

Cocoa price technical analysis

Cocoa price is headed for its second week of losses as the bulls lack enough momentum to break past its current trading range. Notably, the benchmark ICE cocoa futures have been trading sideways since the start of the week. This follows last week’s plunge of over 20%, which saw the agricultural asset drop from its 5-month high. At the time of writing, July ICE cocoa in New York was trading at $3,682 per metric ton, down by 2.26%. 

A look at its daily trading chart points to a sluggish trade in the ensuing sessions. To begin with, its RSI of 45 is near the neutral zone. Besides, at its current level, it is trading below the short-term 25-day EMA and medium-term 50-day EMA. Nonetheless, the bullish golden cross pattern formed two weeks ago is still in place. This offers some support to the asset amid the selling pressure.

In line with these technical indicators and the fundamentals, the range between the support level of $3,631 and the resistance at $4,000 is worth watching in the near term. If the bulls gather enough momentum to break out of that range, cocoa price will likely be curbed at $4,193. On the flip side, further losses will have the bulls defending the lower support level of $3,410.