Cocoa Prices Drop After US Tariff Waiver; EU Delay

Introduction

Last week produced a concentrated set of events that moved cocoa balances and sentiment in opposite directions. Regulators, analysts and trade policy combined to create acute volatility: the European Union approved a one‑year postponement of its deforestation due‑diligence rule, major forecasters scaled back expected surpluses, and the U.S. announced a near‑total tariff waiver on cocoa imports. Each development alters price drivers in a different way; together they explain the recent sharp swings in futures and physicals.

Key Developments That Drove Price Action

EU delays EUDR compliance by one year

On December 18 the EU agreed to postpone the implementation timeline for its anti‑deforestation regulation (EUDR) by roughly one year for large companies and slightly longer for smaller operators. That delay reduces immediate compliance risk for West African exporters and temporarily lowers the prospect of supply disruptions tied to traceability and documentation shortfalls. The announcement removed a near‑term regulatory overhang that had been bid into prices and reduced one source of upward pressure on freighted cocoa.

ICCO and Rabobank tighten surplus estimates

Analytical bodies trimmed their excess‑supply forecasts, signaling that fundamental tightness hasn’t gone away. The International Cocoa Organization (ICCO) revised the 2024/25 surplus sharply lower to about 49,000 tonnes. Rabobank also cut its outlook for 2025/26, narrowing the surplus estimate to roughly 250,000 tonnes from earlier, larger projections. These revisions reflect weaker harvests and slower-than-expected inventory rebuilds in origin countries and underpin a medium‑term bullish bias.

U.S. tariff waiver sparks sharp short‑term selloff

The U.S. government’s decision to lift most import tariffs on cocoa and cocoa products (excluding Brazil) produced an immediate bearish shock. The policy reduces landed costs for U.S. buyers and prompted a wave of futures liquidation—New York futures dropped around double digits from recent peaks and London contracts also declined materially. That move compressed near‑dated premiums and flipped the price curve dynamics in the short term.

What These Contrasting Forces Mean

Short term: policy and flows dominate

In the near term, trade policy and liquidity shifts are the primary price drivers. The tariff waiver removed a structural buyer constraint in the U.S., triggering rapid repositioning by funds and commercial hedgers. The EU delay similarly soothed immediate compliance anxieties, which helped cap a short‑lived rally. Expect elevated intraday volatility as market participants reconcile these signals.

Medium term: fundamentals still matter

Despite regulatory reprieves and tariff relief, lower surplus estimates from the ICCO and Rabobank point to tighter available cocoa and a constructive price floor. If weather, pest pressures or production shortfalls in West Africa persist, fundamentals will reassert themselves and provide support to prices beyond the temporary policy effects.

Actionable Takeaways for Investors and Producers

Traders should favor strategies that account for elevated volatility: consider staggered entries, options hedges to protect against tail moves, and close monitoring of forward curve shifts. Producers and exporters in origin markets should leverage the EU delay to accelerate traceability efforts and build compliance systems before the next enforcement window—turning regulatory postponement into a competitive advantage rather than complacency.

Conclusion

The past week’s developments created a classic tug‑of‑war between short‑term policy shocks and longer‑term supply fundamentals. The U.S. tariff waiver delivered a forceful downward impulse, while the ICCO and Rabobank revisions remind market participants that structural tightness remains. The EU’s implementation delay offers breathing room for origin players—but it does not eliminate the underlying production and inventory risks that will determine cocoa’s trajectory after policy headlines fade.