Mixed Signals in Cocoa Markets: Supply Rebounds While Demand Weakens

Cocoa futures trading on Wednesday reflected divergent currency trends across major markets. New York March contracts gained 49 points, a 0.90% advance, powered by dollar weakness as the currency index dropped to a 5-week low. Conversely, London March cocoa contracts declined 28 points (-0.69%) after sterling surged to a 5-week high, weighing on prices denominated in the British currency. This currency-driven split underscores how exchange rate movements remain a critical price driver for globally-traded commodities.

Supply Recovery Pressures Prices Downward

West African growing conditions have emerged as a significant headwind for cocoa valuations. Farmers across Ivory Coast and Ghana reported that recent rainfall patterns combined with adequate sunshine are accelerating cocoa tree bloom cycles and pod development. Mondelez disclosed that West African cocoa pod counts currently sit 7% above their five-year average, signaling robust crop potential ahead of the main harvest season.

Shipment data from the world’s largest cocoa producer reinforces the supply recovery narrative. Ivory Coast cocoa arrivals at ports totaled 718,451 MT during the October-November period, representing a 2.1% year-over-year decline from 734,026 MT in the same window last year. However, the International Cocoa Organization’s November 21 report shifted market sentiment substantially. ICCO revised its 2024/25 global cocoa surplus forecast to 49,000 MT—a dramatic reversal from its previous 142,000 MT surplus estimate—and lowered production expectations to 4.69 MMT from 4.84 MMT. This marks the first projected surplus in four years, following the 2023/24 deficit of 494,000 MT, the largest in over 60 years.

Inventory Levels Offer Limited Support

Despite favorable fundamentals for producers, shrinking warehouse stocks provided modest price support. ICE-monitored cocoa held in U.S. ports fell to an 8.5-month trough of 1,685,929 bags on Wednesday. Yet this inventory decline appears insufficient to counterbalance the supply recovery outlook, as traders remain focused on the expanding West African harvest prospects.

Demand Deterioration Amplifies Headwinds

Chocolate consumption metrics across major processing regions paint a challenging demand picture. Asian cocoa grinding volumes plummeted 17% year-over-year in Q3 to 183,413 MT—the smallest third-quarter performance in nine years. European processors recorded Q3 grindings of 337,353 MT, down 4.8% annually and marking a decade-low for the quarter. North American chocolate candy sales volume dropped over 21% in the 13 weeks ending September 7, with Q3 grinding activity rising only 3.2% due to new data contributors. Hershey’s CEO characterized Halloween chocolate sales this season as “disappointing,” a particularly notable concern given that Halloween captures nearly 18% of annual U.S. candy sales outside Christmas.

Offsetting Factors: Nigeria’s Production Decline

A potential bullish element emerged from Nigeria, the world’s fifth-ranked cocoa producer. Nigeria’s Cocoa Association projects 2025/26 production will contract 11% year-over-year to 305,000 MT from an estimated 344,000 MT in 2024/25. September export volumes remained flat at 14,511 MT annually, suggesting limited near-term export growth.

Policy Uncertainty Adds Complexity

Recent regulatory decisions introduced additional variables. The European Parliament approved a one-year delay to its deforestation regulation (EUDR) last week, permitting continued agricultural imports from high-deforestation regions in Africa, Indonesia, and South America. Concurrently, the Trump administration eliminated the previously announced 10% reciprocal tariff on non-U.S.-grown commodities including cocoa, alongside the 40% food tariff on Brazilian imports—a meaningful development given Brazil ranks among the global top-10 cocoa producers.

The cocoa market currently faces competing pressures: expanding supplies and weakened consumption globally weigh against structural supply tightness from Nigeria and modest inventory conditions. Price direction will likely hinge on how rapidly West African harvest volumes materialize and whether chocolate demand stabilizes or deteriorates further.