Cocoa Bears Hammer Futures as Global Demand Worries Intensify

Cocoa futures received a significant bearish blow this week, with March ICE NY cocoa closing down 219 points (-4.02%) and March ICE London cocoa dropping 111 points (-2.82%). The double-digit selloff pushed prices to 7-week lows, driven primarily by mounting concerns over tepid global demand and expectations of softer grinding data ahead.

The Demand Crisis: Grinding Figures Paint a Grim Picture

The real hammer blow came from demand-side weakness spreading across major consuming regions. Q4 cocoa grinding figures, due out this week, are poised to confirm what market participants already fear: persistent stagnation in global consumption. Recent grinding data from key regions tells a sobering story:

• Asia saw Q3 cocoa grindings collapse 17% year-over-year to just 183,413 MT—the smallest third-quarter figure in 9 years, according to the Cocoa Association of Asia
• Europe registered Q3 cocoa grindings down 4.8% y/y to 337,353 MT, marking the lowest third quarter in a decade despite being the world’s largest grinding hub
• North America posted modest growth of 3.2% y/y to 112,784 MT, but the addition of new reporting entities muddied the actual consumption picture

This bearish demand backdrop is overwhelming any supportive factors, as chocolate makers and processors worldwide grapple with sluggish consumer demand and inventory digestion.

Supply Relief: West Africa’s Bumper Crop Pressures Prices Further

Just when bears thought they had momentum, a secondary bearish factor emerged from the supply side. Favorable growing conditions in West Africa are expected to deliver a larger cocoa harvest, adding supply weight to an already oversupplied market narrative.

Tropical General Investments Group reported that improved weather conditions in Ivory Coast and Ghana are boosting the February-March harvest, with farmers reporting significantly larger and healthier pods compared to the prior year. Mondelez, a major chocolate manufacturer, noted that the latest cocoa pod count in West Africa is running 7% above the five-year average and materially higher than last year’s crop, suggesting robust yields ahead.

However, one data point provided modest support: cumulative Ivory Coast cocoa shipments through January 11 reached 1.13 MMT, down 2.6% from 1.16 MMT in the same period last year. While this signals some tightness, it’s insufficient to offset the optimism around the expanding harvest.

Index Buying and Inventory Dynamics: Finding the Floor

Despite the bearish fundamentals, cocoa has found some technical support from two sources. First, the inclusion of cocoa futures in the Bloomberg Commodity Index (BCOM) beginning this week is expected to attract substantial index-related buying. Citigroup estimates that the BCOM addition could spur as much as $2 billion in NY cocoa futures purchases from passive funds.

Second, inventory trends have stabilized somewhat. ICE-monitored cocoa inventories at US ports hit a 10-month low of 1,626,105 bags on December 26, before recovering to 1,675,908 bags by Monday—still manageable but showing resilience.

The Supply Story: Long-Term Tightening vs. Near-Term Pressure

The longer-term supply outlook provides a more nuanced picture. The International Cocoa Organization (ICCO) drastically cut its 2024/25 global cocoa surplus estimate to just 49,000 MT in late November, down sharply from a previous 142,000 MT forecast. The organization also lowered its 2024/25 global production estimate to 4.69 MMT from 4.84 MMT.

Rabobank followed suit, slashing its 2025/26 global cocoa surplus forecast to 250,000 MT from 328,000 MT, indicating structural supply tightness. Yet a major headwind arrived when the European Parliament on November 26 approved a 1-year delay to the deforestation regulation (EUDR), allowing continued agricultural imports from deforestation-prone regions in Africa, Indonesia, and South America—a move that keeps cocoa supplies ample in the near term.

Nigeria’s Decline: A Contrarian Support Factor

Nigeria, the world’s fifth-largest cocoa producer, is facing a production downturn that could provide bullish undertones long-term. Nigeria’s Cocoa Association projects 2025/26 production will fall 11% year-over-year to 305,000 MT from an estimated 344,000 MT in 2024/25. September cocoa exports remained flat year-over-year at 14,511 MT, suggesting persistent challenges in the supply chain.

The Bigger Picture: From Deficit to Surplus

Zooming out, the cocoa market has undergone a dramatic structural shift. After posting the largest deficit in over 60 years in 2023/24 (-494,000 MT), ICCO projects a return to surplus territory in 2024/25 at 49,000 MT—the first surplus in four years. Global production rebounded 7.4% year-over-year to 4.69 MMT, marking a significant recovery from the crisis lows.

This fundamental transformation from scarcity to abundance remains the bearish theme underneath recent price weakness. Until grinding demand accelerates or fresh supply concerns emerge, cocoa bears may maintain their grip on futures prices.