Multiple Headwinds Weigh on Cocoa Markets Despite Supply Tightness Concerns

Cocoa futures experienced downward pressure this week as contract prices retreated on multiple fronts. March contracts on ICE NY dropped 6 points (-0.12%), while December London cocoa futures slid 10 points (-0.27%). The pullback came despite the asset maintaining ground above key technical support levels established a year earlier, highlighting the complex interplay of bullish and bearish factors currently shaping cacao valuations.

Policy Shifts Ease Near-Term Supply Concerns

A significant catalyst emerged from Brussels, where European Parliament members voted to postpone the EU Deforestation Regulation (EUDR) by one year. The deferral proved immediately bearish for cocoa markets, as the delay permits continued agricultural imports from high-deforestation regions across West Africa, Indonesia, and Latin America. Rather than tightening supply channels, the regulatory reprieve effectively widens sourcing options for EU chocolate manufacturers and keeps near-term availability robust.

West African Harvest Outlook Brightens

Field conditions across the world’s leading cocoa-producing regions have turned decidedly favorable. Farmers in Ivory Coast, which commands roughly 40% of global cocoa supply, reported robust tree health and accelerated pod maturation driven by recent weather patterns. Ghana’s agronomic outlook similarly improved, with weather supporting faster crop development. Mondelez International, a major chocolate processor, disclosed that current West African pod counts run 7% above the five-year baseline and materially exceed the prior year’s tally, suggesting a materially upgraded harvest picture for the coming season.

The Ivory Coast’s primary crop harvest commenced recently with farmer sentiment tilted optimistic regarding both yield and quality metrics. Monday’s Port Authority data underscored cautious expectations: cocoa deliveries to domestic ports for the 2024/25 marketing year (October 1 through November 23) totaled 618,899 MT, representing a 3.7% decline from 642,500 MT in the comparable prior-year window.

Tariff Relief Removes Additional Price Support

The Trump administration’s November announcement eliminating reciprocal tariffs on non-US grown commodities, including cacao, also weighed on sentiment. The concurrent elimination of the 40% food import levy targeting Brazil—a top-10 cocoa producer—signaled reduced friction costs for cacao sourced from major South American suppliers, adding incremental supply pressure.

Demand Signals Suggest Structural Weakness

Chocolate consumption data has painted a disappointing picture across major markets. Hershey’s leadership publicly acknowledged lackluster Halloween-season chocolate sales, particularly meaningful given that this period typically drives nearly 18% of annual US confectionery revenue. Q3 Asian cocoa grindings contracted 17% year-over-year to 183,413 MT—marking the weakest third-quarter performance in nine years. European processors ground 337,353 MT in Q3, down 4.8% annually and the lowest third-quarter volume recorded across the past decade. North American chocolate candy sales volume fell over 21% during the 13-week period ending September 7, a sharp deterioration relative to the prior year.

Supply-Demand Dynamics Show Mixed Signals

Offsetting some bearish factors, ICE-monitored cocoa inventories held at US ports reached an 8.5-month trough of 1,709,185 bags this week, providing modest price support. Looking ahead, Nigeria—the fifth-largest cocoa contributor to global supplies—faces declining production. The Nigerian Cocoa Association projects 2025/26 output will shrink 11% to 305,000 MT from the current crop-year estimate of 344,000 MT.

The International Cocoa Organization’s recent assessments highlight structural market evolution. After recording a historic 494,000 MT deficit in 2023/24 (the largest in over 60 years), ICCO projects the 2024/25 season will flip to a 142,000 MT surplus—the first surplus witnessed in four years. Global production estimates for 2024/25 rose 7.8% to 4.84 MMT, while the stocks-to-grindings ratio has stabilized from 46-year lows of 27.0% previously recorded.

For investors tracking cocoa through ETF cacao exposure or direct futures positions, the current environment reflects a transition from acute shortage conditions toward more balanced supply-demand dynamics, even as consumption headwinds persist across developed markets.