Cocoa Market Under Pressure: Demand Weakness Hammers Prices Despite Tightening Supply

Cocoa futures took a significant beating on Tuesday as weak global demand overshadowed improving supply dynamics. March ICE NY cocoa (CCH26) plunged -219 points to close down -4.02%, while March ICE London cocoa #7 (CAH26) dropped -111 points, shedding -2.82%. The commodity hit its lowest point in seven weeks, signaling intensifying bearish pressure on the complex.

Demand Crisis Weighs Heavily on Cocoa Complex

The primary headwind hammering cocoa prices is the persistent weakness in global grinding demand. This week’s release of Q4 cocoa grinding figures is anticipated to reveal another disappointing quarter of subdued consumption across major manufacturing hubs.

Asia’s cocoa processing sector has become particularly concerning. The Cocoa Association of Asia reported that Q3 Asian cocoa grindings fell by -17% year-over-year to just 183,413 MT, marking the smallest third-quarter volume in nine years. Europe is facing similar challenges, with Q3 European cocoa grindings declining -4.8% y/y to 337,353 MT, the lowest for a Q3 in a decade. North America showed modest growth of +3.2% y/y to 112,784 MT in Q3, though new reporting company additions skewed the results.

This grinding weakness directly reflects reduced chocolate manufacturer confidence and consumer demand, creating a structural headwind for price appreciation.

West Africa’s Harvest Boom Creates Supply Headwinds

Amplifying bearish pressure, West Africa is experiencing exceptionally favorable growing conditions that promise to deliver robust cocoa supplies. Tropical General Investments Group notes that improved weather patterns across the Ivory Coast and Ghana are setting the stage for a larger February-March harvest, with farmers reporting larger and healthier cocoa pods compared to last year’s cycle.

Chocolate maker Mondelez confirmed this rosier supply outlook, noting that the latest cocoa pod count in West Africa stands 7% above the five-year average and “materially higher” than previous year’s production levels. The Ivory Coast, the world’s top cocoa producer, has already begun harvesting its main crop season with farming communities expressing optimism about crop quality.

However, one bullish counter to the supply surge comes from actual shipment data. Cumulative Ivory Coast cocoa shipments through January 11 of the current marketing year totaled 1.13 MMT, down -2.6% from 1.16 MMT in the identical period a year earlier, suggesting farmers may be holding back supplies or logistics remain constrained despite crop abundance.

Inventory Dynamics Present Mixed Signals

ICE-monitored cocoa inventories initially supported the bullish case after sliding to a 10-month low of 1,626,105 bags on December 26. However, this supportive factor has since evaporated, with warehouse stocks rebounding to a 5-week high of 1,675,908 bags by Monday, eliminating the inventory tightness argument for price support.

Long-Term Deficit Concerns Offer Underlying Support

Despite near-term demand weakness, structural supply constraints continue to offer cocoa bulls a foundation for eventual recovery. The International Cocoa Organization slashed its 2024/25 global cocoa surplus estimate to just 49,000 MT on November 28, down sharply from a prior forecast of 142,000 MT. ICCO simultaneously lowered global cocoa production expectations for 2024/25 to 4.69 MMT from 4.84 MMT previously.

Rabobank reinforced this tightening narrative last Tuesday, cutting its 2025/26 global cocoa surplus forecast to 250,000 MT from a November projection of 328,000 MT. These revisions underscore the structural deficit concerns that have hammered the market into surplus territory only recently—ICCO’s December 19 estimate marked the first projected surplus in four years after a record deficit period.

Policy Delay Provides Near-Term Relief for Producers

The European Parliament’s November 26 decision to delay the EU Deforestation Regulation (EUDR) by one year represents a policy win for cocoa-exporting nations. This reprieve allows EU countries to continue importing agricultural commodities from deforestation-prone regions in Africa, Indonesia, and South America, keeping global cocoa supply channels open and pressure on prices sustained.

Nigeria Production Decline Offers Modest Support

Nigeria’s projected cocoa output for 2025/26 presents one bullish factor. Nigeria’s Cocoa Association forecasts production will decline -11% year-over-year to 305,000 MT from an estimated 344,000 MT in the 2024/25 season. As the world’s fifth-largest producer, any reduction in Nigerian output eventually tightens the global supply picture.

Bloomberg Index Addition Offers Potential Bid

One technical factor that could provide support is the anticipated index-related buying. Cocoa futures’ addition to the Bloomberg Commodity Index (BCOM) beginning this week may attract approximately $2 billion in NY cocoa futures purchases according to Citigroup analysis, providing potential near-term price support despite fundamental headwinds.

Conclusion: Near-Term Pressure Meets Long-Term Tightness

The cocoa complex faces a classic near-term versus long-term dynamic. Weak global demand continues to hammer prices downward, while abundant West African supplies and policy delays extend that bearish pressure. Yet underlying structural deficits and supply tightening forecast for 2025/26 suggest the market’s capitulation may be overdone, offering traders a potential inflection point as fundamentals reassert themselves.