Cocoa Market Signals Mixed as Prices Settle on Supply-Demand Rebalancing

Cocoa futures ended lower this week, with March ICE NY cocoa sliding -44 points (-0.74%) and March ICE London cocoa #7 declining -24 points (-0.55%). The price settlement reflects an increasingly complex backdrop where favorable production conditions collide with persistent demand headwinds.

Supply Outlook Shifts Bullish, but Demand Remains a Concern

West African farmers are reporting ideal conditions for the upcoming harvest. In Ivory Coast, the combination of adequate rainfall and sunshine has accelerated pod development, while Ghana’s regular precipitation is supporting tree health ahead of the critical harmattan season. Mondelez’s latest field assessments show cocoa pod counts running 7% above the five-year average, signaling a potentially robust harvest compared to last year’s output.

However, this supply confidence may be short-lived. The European Parliament’s decision to delay the EUDR deforestation regulation by one year has removed a significant supply constraint, allowing continued imports from deforestation-prone regions. This policy shift is working against price support.

Inventory Dynamics Tell a Different Story

Despite supply optimism, physical cocoa stocks are tightening. ICE-monitored inventories at US ports hit a 9-month low of 1,642,801 bags on Thursday—a supportive signal for prices seeking a floor. This inventory compression provides structural support even as weather and crop forecasts point to abundance.

Arrivals data from Ivory Coast ports show 895,544 MT shipped during the new marketing year (October 1-December 14), up only 0.2% year-over-year, suggesting logistics may be constraining supply flow to the market.

Demand Picture Remains Weak

Chocolate consumption data presents a headwind. Hershey reported “disappointing” Halloween candy sales—a crucial seasonal metric accounting for 18% of annual US candy sales. Regional grindings data reinforces this concern: Asia cocoa grindings fell 17% year-over-year in Q3 to 183,413 MT (a 9-year low for the period), while European grindings declined 4.8% to 337,353 MT (a 10-year low for Q3). North American chocolate sales volume dropped over 21% in the 13 weeks ending September 7.

Emerging Support: Index Inclusion and Nigeria’s Decline

NY cocoa futures are gaining a structural tailwind through inclusion in the Bloomberg Commodity Index beginning in January. Citigroup estimates this passive fund rebalancing could attract as much as $2 billion in buying during the first week of January—a potential price catalyst.

On the supply side, Nigeria’s projected 11% year-over-year production decline to 305,000 MT for 2025/26 removes supply volume from the world’s fifth-largest producer, offering modest price support.

Analyst Forecasts Signal Recovery Potential

Recent analyst downgrades to global surplus estimates suggest tightening fundamentals. Citigroup cut its 2025/26 global surplus estimate from 134,000 MT to 79,000 MT, while Rabobank trimmed its forecast from 328,000 MT to 250,000 MT—both indicating shrinking inventory buffers.

The price settlement this week reflects the market’s struggle between abundant near-term supply and structurally weakening demand, with technical support from inventory draws and policy changes offering modest relief to sellers.