Cocoa Futures Retreat as West African Weather Signals Adequate Supply Recovery

Cocoa futures opened lower on Thursday as market sentiment shifted toward better supply expectations. March contracts on ICE NY dropped -44 points (-0.74%) and March ICE London fell -24 points (-0.55%), pulling NY cocoa back to 1-week lows and signaling a pullback from recent strength.

Weather Conditions Point to Improved Yields Across Key Regions

The decline follows encouraging agricultural reports from major producing regions. Farmers across West Africa are witnessing conditions that support robust crop development. In the Ivory Coast, where the main harvest has recently commenced, cocoa growers report a beneficial combination of rainfall and clear skies promoting tree flowering and pod maturation. Similarly, Ghanaian farmers note consistent precipitation ahead of the harmattan season, creating favorable conditions for pod development.

Mondelez, a major chocolate manufacturer, recently highlighted that current West African cocoa pod counts are running 7% ahead of the five-year average, with levels materially exceeding the prior year’s output. This data point has reinforced expectations that adequate supply will return to global markets, weighing on price sentiment.

Supply Outlook Moderates After Earlier Bullish Revisions

Recent months saw cocoa prices rally sharply on tight supply concerns, but the narrative has begun shifting. Port receipts tell part of the story: Ivory Coast farmers channeled 895,544 MT of cocoa to ports from October 1 through December 14—slightly above the 894,009 MT recorded in the same period last year. The minimal growth rate (-0.2% y/y increase) suggests an orderly harvest without supply disruptions, allowing adequate inventory flows.

The European Parliament’s November 26 approval of a one-year delay to the deforestation regulation (EUDR) also removed a potential supply constraint, allowing continued agricultural imports from African, Indonesian, and South American regions. This reprieve has eased prior bullish supply concerns.

Inventory Levels Provide Price Support Despite Bearish Outlook

A bright spot for price-supporting factors emerged Thursday: ICE-monitored cocoa inventories in US ports fell to 9-month lows at 1,642,801 bags. Despite adequate supply prospects, the declining warehouse stocks suggest underlying structural tightness that could eventually underpin prices.

Citigroup’s revised forecasts added nuance to the supply picture. The bank cut its 2025/26 global cocoa surplus estimate to 79,000 MT from September’s 134,000 MT projection, indicating supply-demand balances remain less generous than previously feared. Additionally, Rabobank trimmed its 2025/26 surplus to 250,000 MT from 328,000 MT, signaling that adequate supplies may be tighter than headline reports suggest.

Demand Weakness Continues to Pressure Markets

Global chocolate demand remains soft, adding downside pressure. Hershey’s CEO noted “disappointing” chocolate sales during the Halloween season, which typically represents nearly 18% of annual US candy sales. More significantly, regional cocoa grindings data revealed troubling trends:

• Asia’s Q3 cocoa grindings fell -17% y/y to 183,413 MT (9-year low for Q3)
• Europe’s Q3 grindings dropped -4.8% y/y to 337,353 MT (10-year low for Q3)
• North American chocolate sales volume declined over -21% in the 13 weeks ending September 7

This grinding weakness, combined with adequate supply prospects, creates a bearish demand-supply dynamic that has undermined recent bullish momentum.

Index Inclusion Could Provide Late-January Support

One bullish wildcard remains: NY cocoa’s January inclusion in the Bloomberg Commodity Index (BCOM) could trigger passive fund buying. Citigroup estimates the inclusion may attract as much as $2 billion in futures purchases during the first week of January, offering potential price support despite the current bearish tone.

Production Headwinds from Nigeria Offer Modest Offset

Nigeria’s Cocoa Association projects 2025/26 production will decline -11% y/y to 305,000 MT, providing a counterweight to abundant West African supplies. As the world’s fifth-largest producer, Nigeria’s lower output offers mild bullish support, though insufficient to offset broader adequate supply dynamics dominating the market.

The confluence of favorable weather in leading producers, moderating supply concerns, and weak global demand has shifted cocoa futures toward a consolidation bias, with adequate supply expectations likely to cap near-term upside.