Are Cocoa ETFs Still a Play After Last Year’s Surge?

Tight Supplies Meet Demand Concerns

The cocoa market continues to grapple with the aftershocks of 2024's historic rally—when prices surged 177% to record highs (see our article in January 2025 here). Recent trading saw cocoa futures climb toward $10,570 per tonne, approaching their highest levels since early February, as supply concerns persist. West Africa—which produces nearly 70% of the world's cocoa—continues to face structural challenges, with the Ivory Coast's mid-crop harvest plagued by quality issues (5-6% rejection rates versus historical norms of 1%). Ghana, the second-largest producer, has compounded these worries by revising its 2024/25 output forecast downward to 617,500 MT, reinforcing deficit concerns.

However, demand-side pressures are emerging as a counterbalance. Major chocolate manufacturers, including Hershey and Mondelez, have reported softening sales as consumers resist higher retail prices. The EU’s new deforestation regulations have also introduced additional compliance costs, further straining processors. While the International Cocoa Organization (ICCO) forecasts a 142,000 MT surplus for 2024/25, current stockpiles remain at multi-decade lows, leaving the market vulnerable to short-term disruptions.

A Market in Transition

The cocoa market appears to be transitioning from extreme scarcity toward potential stabilization. While production hurdles persist, the ICCO’s surplus projection could cap further dramatic price gains. For ETF investors, this means:

• Short-term traders may find opportunities in supply-driven spikes, particularly with leveraged products like LCOC.
• Long-term holders should monitor demand trends and West African harvest updates, as a confirmed surplus could extend the YTD downtrend.

In this environment, cocoa ETCs remain a high-risk, high-reward proposition—best suited for investors who can stomach volatility and act swiftly on shifting fundamentals.

Wild Swings Reflect Market Uncertainty

Cocoa-focused exchange-traded products have mirrored this volatility. The WisdomTree Cocoa ETC (COCO), Europe’s sole pure-play cocoa ETF, surged 12.34% in the week ending May 16, 2025, as fresh supply worries resurfaced. Despite this rebound, COCO remains down 18.26% year-to-date, highlighting the broader downward pressure from softening demand and surplus expectations.

The WisdomTree Cocoa 2x Daily Leveraged ETC (LCOC), designed for short-term traders, magnified these moves with a 24.30% weekly gain. Yet, its -38.09% YTD decline underscores the risks of leveraged exposure in such an unstable market. While LCOC has attracted 10.2 million in net in flows this year, recent outflows of 1.2 million suggest traders are locking in profits after the rally.

Total assets across cocoa ETCs stand at 43.7million, with13.4 million in net inflows YTD. This suggests lingering interest in cocoa as a tactical play, though with heightened awareness of its risks. The divergence between weekly surges and YTD losses illustrates how quickly sentiment can shift—investors must weigh near-term supply risks against longer-term demand erosion and potential surplus conditions.

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Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.