Cocoa Market Stakes Rising as Demand Concerns Hammer Prices Further

The cocoa market faced renewed pressure this week as weak global demand continues to stake its claim on prices. March NY cocoa futures closed Thursday down 124 points (-2.44%), sinking to a 2-year low, while March London cocoa dropped 86 points (-2.30%) to 1.5-month lows, extending losses that have accumulated throughout the week.

Supply Headwinds Amplified by Harvest Optimism

Perhaps most alarming for price bulls is the outlook on global cocoa production. The European Cocoa Association reported a Q4 grindings decline of -8.3% year-on-year to 304,470 MT—significantly worse than the -2.9% expectation and marking the lowest Q4 volume in 12 years. Asia’s cocoa processing sector is expected to contract even more sharply, with Q4 grindings projected to fall -12% year-on-year to a 10-year trough.

West Africa’s favorable growing conditions are magnifying the demand-supply imbalance. Tropical General Investments Group highlighted that robust weather patterns in the Ivory Coast and Ghana are supporting larger and healthier cocoa pods this February-March, compared to the prior year period. Mondelez reported that the latest pod count in West Africa stands 7% above the five-year average and substantially above last year’s crop, signaling a robust February-March harvest ahead.

Production Pressures with Mixed Signals

While Ivory Coast farmers have begun harvesting the main crop with optimistic sentiment about quality, cumulative shipments tell a more cautious story. Through January 11 of the current marketing year, Ivory Coast farmers shipped 1.13 MMT to ports—a -2.6% year-on-year decline from 1.16 MMT in the comparable period. As the world’s largest cocoa producer, any supply fluctuations carry outsized market importance.

Nigeria, the fifth-largest cocoa producer, presents a contrasting picture. Its Cocoa Association projects 2025/26 production will drop -11% year-on-year to 305,000 MT from the 2024/25 estimate of 344,000 MT, providing some price support on tighter supplies from that region. September cocoa exports from Nigeria remained flat year-on-year at 14,511 MT.

The Supply Rebalancing Timeline

The International Cocoa Organization shifted its posture in November, cutting the 2024/25 global surplus estimate dramatically to 49,000 MT from a previous 142,000 MT forecast. The organization also lowered its 2024/25 production projection to 4.69 MMT from 4.84 MMT previously. This marks the first surplus in four years after the 2023/24 season logged a record -494,000 MT deficit—the largest in over 60 years—when production collapsed -12.9% year-on-year to 4.368 MMT.

Rabobank recently added pressure to the bearish narrative, cutting its 2025/26 global surplus forecast to 250,000 MT from a November projection of 328,000 MT, underscoring tightening fundamentals ahead.

Policy and Inventory Dynamics

Regulatory developments have added complexity. On November 26, the European Parliament approved a 1-year delay to the deforestation law (EUDR), allowing EU countries to continue importing agricultural products from regions where deforestation is occurring. The reprieve may sustain cocoa supplies from Africa, Indonesia, and South America, tempering any supply-side price support.

Inventory trends present mixed signals. ICE-monitored cocoa stocks held in US ports plunged to a 10-month low of 1,626,105 bags on December 26 but have since recovered to 1,680,417 bags by Thursday, settling near 1.25-month highs. The inventory rebound reflects both improved supply flows and weakening demand absorption.

The Fundamental Imbalance

What emerges is a market caught between conflicting forces: a meaningful rebalancing in global supply-demand after years of deficits now stakes its claim on prices, yet this very rebalancing is underpinned by robust West African harvests and moderate demand recovery. For traders, the challenge lies in determining whether current price levels adequately reflect the shifting fundamental landscape or if further adjustments lie ahead as Q4 processing data from North America and Asia confirm the full extent of demand weakness.