Cocoa Markets Face Headwinds: Demand Weakness Offsets Optimism Over Supply Expansion

Cocoa futures experienced significant weakness on Tuesday as market participants reassess the balance between slowing global demand and expectations of expanded production in leading cocoa-growing regions. December contracts on ICE New York settled 273 points lower, representing a 4.47% decline, while December London cocoa fell 206 points, or 4.73%, bringing both benchmarks to their lowest levels in several weeks.

Demand Concerns Drive the Recent Selloff

The sharp downward pressure on cocoa prices stems primarily from evidence of tepid consumer demand across major chocolate-consuming markets. Hershey’s management disclosed that chocolate sales during the recent Halloween season proved “disappointing,” a concerning signal given that Halloween represents nearly 18% of annual US candy sales, trailing only Christmas in significance.

Asia’s cocoa-consuming sectors have shown particular weakness. The Cocoa Association of Asia reported that third-quarter grindings—a key measure of cocoa processing activity—contracted 17% on a year-over-year basis to 183,413 metric tons, marking the lowest third-quarter volume in nine years. European demand has similarly declined, with the European Cocoa Association noting that Q3 grindings fell 4.8% year-over-year to 337,353 MT, the weakest third quarter in a decade.

North American chocolate candy sales have deteriorated markedly as well. In the 13-week period ending September 7, chocolate candy sales volume in North America fell more than 21% compared to the prior-year period, according to data from research firm Circana.

West African Production Outlook Weighs on Prices

The primary driver of Tuesday’s decline was renewed optimism regarding cocoa production in West Africa, home to nearly 75% of global cocoa supply. Cocoa farmers across Ivory Coast and Ghana have reported favorable conditions for cocoa plant development and pod maturation. Recent dry weather in Ivory Coast has aided the drying process for harvested cocoa beans, while Ghana’s farmers have benefited from moisture-favorable conditions that are accelerating pod growth.

Chocolate manufacturer Mondelez noted that current cocoa pod counts in West Africa are running 7% above the five-year average and materially higher than the prior year’s harvest. The Ivory Coast, representing the world’s largest cocoa-producing nation, has just commenced its primary harvest season, with farmers expressing optimism regarding crop quality.

Mixed Signals From Export Data

Countering some of the bearish sentiment, shipment flows from Ivory Coast have shown signs of moderation. Government data released Monday indicated that Ivorian farmers transported 411,979 metric tons of cocoa to ports during the current marketing year (October 1 through November 8), representing a 9% decline from 454,624 MT in the comparable prior-year period. This slowdown could provide underlying support for the market.

Technical and Structural Support Factors

Several structural factors may provide price floors. ICE-monitored cocoa inventories stored at US ports declined to a 7.5-month low of 1,786,616 bags on Tuesday, suggesting tightening physical availability despite weak demand.

Financial positioning in London cocoa also presents potential for upside volatility. Last Friday’s Commitment of Traders report revealed that funds increased their net-short positions by 3,746 contracts in the week ended November 4, reaching 19,194—the highest short position level in more than four years. Excessive short positioning could trigger covering rallies if market sentiment shifts.

Production Headwinds Beyond West Africa

Nigeria, the world’s fifth-largest cocoa producer, faces production challenges that may provide additional support. Nigeria’s Cocoa Association projects 2025/26 production will decline 11% year-over-year to 305,000 MT from a projected 344,000 MT in the current crop year.

The International Cocoa Organization’s latest assessment provides context for the broader supply-demand backdrop. Following a severe 2023/24 deficit of 494,000 MT—the largest in over 60 years—the organization projects a global surplus of 142,000 MT for 2024/25, marking the first surplus in four years. Global production for 2024/25 is estimated at 4.84 MMT, representing 7.8% year-over-year growth.

Outlook and Index Inclusion Factor

One supportive development emerged last Tuesday when the Bloomberg Commodity Index announced cocoa’s inclusion for the first time in 20 years, effective January. With assets tracking this index totaling approximately $109 billion, and cocoa representing a 1.7% weighting, passive fund flows could introduce significant demand. Peak Trading Research LLC estimates funds will need to purchase approximately $1.9 billion in cocoa futures over the next 80 days to meet index rebalancing requirements.