Can Cocoa Break Free from Demand Slump? Bloomberg Index Inclusion and Supply Shifts Paint a Mixed Picture

March ICE NY cocoa futures (CCH26) surged +187 points (+3.28%) today, while March ICE London cocoa #7 (CAH26) climbed +148 points (+3.59%), extending a robust three-week-plus rally. The two-week uptrend has now pushed prices to 3.5-week highs, but the underlying market dynamics tell a more complex story than a simple bullish breakout.

Why Demand is the Real Headwind

Chocolate sales have been struggling badly. Hershey’s CEO admitted Halloween seasonal sales were “disappointing”—a critical metric since Halloween commands nearly 18% of annual US candy sales, ranking second only to Christmas in revenue importance. This halloween quotes sentiment perfectly captures the weakening consumer appetite rippling through the industry.

The pain extends globally. Asia’s Q3 cocoa grindings plummeted 17% year-over-year to just 183,413 MT, marking the smallest output for any Q3 in nine years. Europe wasn’t spared either: Q3 cocoa grindings fell 4.8% y/y to 337,353 MT, hitting a 10-year low for third-quarter processing. Even North America, which saw a modest 3.2% rise to 112,784 MT, had inflated figures due to new reporting firms joining the count. Real chocolate candy sales volumes tell the true story—North American chocolate sales dropped over 21% in the 13 weeks ending September 7 compared to the prior year.

The Supply Reprieve: Smaller Surplus and Index Catalysts

The International Cocoa Organization (ICCO) threw the market a curveball in late November, dramatically cutting its 2024/25 global cocoa surplus forecast to just 49,000 MT—down 73% from the previous 142,000 MT estimate. Production guidance also tightened to 4.69 MMT from 4.84 MMT, signaling tighter-than-expected supplies after years of massive gluts that crushed prices.

More immediate price support comes from Bloomberg Commodity Index (BCOM) inclusion starting January. New York cocoa futures entering this widely-tracked benchmark is triggering strategic buying from passive commodity funds. Citigroup estimates this structural inflow could push as much as $2 billion into NY cocoa futures during the first week of January alone—a meaningful dislocation that traders are front-running.

Inventory Compression Narrows the Safety Valve

Physical cocoa inventories monitored by ICE at US ports have tightened significantly, falling to an 8.75-month low of 1,675,801 bags on Monday. Meanwhile, Ivory Coast cocoa arrivals—from the world’s largest producer—are tracking lower. Government data shows 804,288 MT of cocoa shipped to ports from October 1 through December 7, representing a 1.8% decline from 819,425 MT in the same 2023 period.

However, West African weather remains a potential supply multiplier. Farmers across Ivory Coast and Ghana are reporting ideal conditions: a mix of rain and sunshine is spurring tree blooming and pod development. Industry observers note that cocoa pod counts in West Africa are running 7% above the five-year average—a clear signal that the main crop harvest, which just kicked off, could deliver ample supplies.

The Tariff and Regulation Wildcard

A Trump administration decision to scrap 10% reciprocal tariffs on commodities excluding US-grown goods—including cocoa—removed a bearish overhang in mid-November. Similarly, the European Parliament’s November 26 approval of a one-year delay to the deforestation regulation (EUDR) kept import channels open for cocoa-producing regions facing environmental restrictions, removing short-term supply squeeze risk.

Nigeria’s production challenges provide the only meaningful structural headwind. The country, world’s fifth-largest cocoa producer, projects 2025/26 output falling 11% y/y to 305,000 MT from 344,000 MT.

The Bottom Line

Cocoa’s latest leg higher reflects index inclusion optimism and tighter surplus expectations—not a resolution of demand weakness. Until chocolate sales stabilize globally and grindings recover, any rally remains vulnerable to the underlying consumption headwind.