Global Cocoa Surplus Contraction Ignites Buying Frenzy in Futures Markets

Supply Squeeze Reshapes Cocoa Futures Landscape

The cocoa futures market experienced a significant rally on Tuesday, with March ICE NY cocoa closing +122 points (+2.08%) and March ICE London cocoa #7 advancing +128 points (+3.02%). The upward pressure stemmed primarily from a dramatic revision of global cocoa surplus projections downward. Citigroup slashed its 2025/26 global cocoa surplus estimate to just 79,000 MT, a sharp pullback from its September forecast of 134,000 MT—marking a critical recalibration of supply assumptions that triggered short-covering activity across cocoa futures contracts.

Tightening Inventory Conditions Support Price Recovery

Physical supply conditions continue to reinforce the bullish narrative for cocoa prices. ICE-monitored cocoa inventories stored at US ports hit a 9-month low, declining to 1,651,199 bags on Tuesday. This inventory contraction reflects a genuine tightening in accessible global supplies, providing fundamental support beneath cocoa futures valuations.

Bloomberg Index Inclusion Signals Passive Inflows

A structural catalyst emerged that could amplify the upward momentum in cocoa markets. Beginning in January, NY cocoa futures will gain inclusion in the Bloomberg Commodity Index (BCOM), a development that could attract substantial passive capital flows. Citigroup estimates that BCOM-tracking funds could channel as much as $2 billion into NY cocoa futures during the first week of January alone. This passive rebalancing mechanism presents a compelling technical floor for cocoa price support.

Downward Surplus Revisions Across Multiple Forecasters

The pessimistic reassessment of surplus conditions extends beyond Citigroup’s analysis. Rabobank similarly reduced its 2025/26 global cocoa surplus projection to 250,000 MT from a November estimate of 328,000 MT. These consecutive downward revisions from major commodity analysts underscore a consensus shift toward tighter supply-demand fundamentals. The ICCO’s previous November 28 update had already cut its 2024/25 surplus estimate to 49,000 MT (from 142,000 MT earlier), while simultaneously lowering global production forecasts for that season to 4.69 MMT from 4.84 MMT.

West African Production Headwinds Create Uncertainty

Despite recent price gains, structural production challenges in key growing regions present mixed signals for longer-term supply dynamics. Nigeria, the world’s fifth-largest cocoa producer, faces declining output. The Nigeria Cocoa Association projects a -11% year-over-year production decline for 2025/26, with production expected to fall to 305,000 MT from an estimated 344,000 MT in the prior season. September exports remained flat at 14,511 MT compared to year-ago levels, suggesting limited export momentum from Africa’s second-tier producer.

Ivory Coast Arrivals Create Near-Term Bearish Counterweight

The world’s largest cocoa producer, Ivory Coast, reported increased port arrivals during the early marketing year. Government data released Monday showed Ivory Coast farmers shipped 895,544 MT of cocoa to ports between October 1 and December 14, a marginal +0.2% increase from 894,009 MT during the identical prior-year window. While the uptick remains modest, it provides temporary downward pressure on price momentum amid expectations of a robust harvest from West African farms.

Demand Weakness Persists Across Key Consuming Regions

The rally in cocoa prices faces headwinds from subdued global demand. The Cocoa Association of Asia reported that Q3 cocoa grindings fell -17% year-over-year to 183,413 MT, marking the smallest Q3 output in nine years. European cocoa grindings similarly contracted, declining -4.8% year-over-year to 337,353 MT in Q3—the lowest third-quarter figure in a decade. While North American cocoa grindings rose +3.2% year-over-year to 112,784 MT, new reporting additions skewed the comparative data. Chocolate manufacturers have reported lackluster consumer demand; Hershey’s CEO cited “disappointing” Halloween chocolate sales in 2024, despite that holiday representing nearly 18% of annual US candy sales.

Regulatory Clarity Provides Near-Term Headroom for Supplies

European regulatory dynamics temporarily supported broader cocoa supply availability. The European Parliament approved a one-year delay to the deforestation regulation (EUDR) on November 26, allowing EU nations to continue importing agricultural commodities from high-deforestation regions in Africa, Indonesia, and South America. This regulatory reprieve removed a near-term supply constraint, previously weighing on cocoa price valuations.

Historical Context: Multi-Decade Supply Deficit Reversed

The current shift toward balanced and moderately surplus conditions marks a dramatic departure from prior-year dynamics. The ICCO’s May 30 report had documented a 2023/24 global cocoa deficit of -494,000 MT, the most severe deficit in over 60 years. That season saw production plummet -12.9% year-over-year to 4.368 MMT, while the global stocks-to-grindings ratio deteriorated to a 46-year low of 27.0%. The subsequent 2024/25 season reversed this trajectory, delivering the first global surplus in four years (49,000 MT) and generating a +7.4% year-over-year production rebound to 4.69 MMT.

Market Outlook: Surplus Dynamics Dominate Price Direction

The cocoa futures market remains caught between structural headwinds and near-term supportive factors. Moderating surplus projections and inventory tightening provide underpinning support, while passive index inflows could catalyze additional buying pressure. Conversely, emerging demand weakness and West African production resilience introduce downward pressure on valuation multiples. Market participants should monitor both supply revisions and demand indicators closely, as the delicate balance between surplus conditions and consumption trends will likely govern cocoa price direction through the first quarter.