Global Cocoa Prices Navigate Divergent Market Pressures Amid Demand and Supply Tensions

Cocoa prices experienced modest gains in early trading as dollar weakness provided temporary support, but the commodity remains under structural pressure from slowing global chocolate consumption and a dramatically tightening supply outlook. March ICE NY cocoa futures rose 19 points (+0.43%) to close higher, while London cocoa #7 advanced 7 points (+0.22%), as the broad dollar index weakness sparked short-covering activity in cocoa markets.

The modest price recovery masks deeper challenges facing cocoa prices, which had extended a punishing two-week selloff in the preceding sessions. During this downturn, New York cocoa touched its lowest point in 2 years on a nearby-futures basis, while London cocoa reached lows not seen in 2.25 years. The underlying culprit: persistent demand weakness stemming from consumer resistance to elevated chocolate prices.

Demand Destruction Accelerates Across Global Chocolate Industry

Cocoa prices face relentless headwinds from collapsing demand across major consumer markets. Barry Callebaut AG, the world’s dominant bulk chocolate supplier, disclosed a stark -22% contraction in cocoa division sales volume for the quarter ending November 30, attributing the decline to “negative market demand and a prioritization of volume toward higher-return segments.” This major industry bellwether signals that elevated cocoa prices have triggered demand destruction rather than price acceptance.

The weakness extends globally. European cocoa grinding activity—a proxy for regional chocolate consumption—fell -8.3% year-over-year to 304,470 metric tonnes in Q4, substantially worse than the anticipated -2.9% decline and marking the lowest fourth-quarter performance in 12 years. Asian cocoa grindings contracted -4.8% year-over-year to 197,022 MT, while North American processors managed only marginal growth of +0.3% year-over-year to 103,117 MT. These coordinated demand declines across all three major processing regions indicate that cocoa prices have exceeded consumer tolerance thresholds.

West African Harvest Abundance: Mixed Implications for Cocoa Prices

The supply picture presents a complex backdrop for cocoa prices. While West African growing conditions have improved significantly, boosting the February-March harvest outlook in Ivory Coast and Ghana, this development carries contradictory implications. Farmers report larger and healthier cocoa pods relative to the prior year, and chocolate producer Mondelez recently noted that current pod counts in West Africa stand 7% above the five-year average and “materially higher” than last year’s crop.

However, improved harvest prospects are limiting any price recovery. Ivory Coast farmers have shipped only 1.16 million metric tonnes to ports during the new marketing year (October 1 through January 18)—a -3.3% decline versus 1.20 MMT in the equivalent period a year prior. Despite representing the world’s largest cocoa producing region, Ivory Coast supplies remain constrained. Nigeria, the world’s fifth-largest cocoa producer, faces even sharper tightness, with November exports plummeting -7% year-over-year to 35,203 MT. Looking ahead, Nigeria’s Cocoa Association projects production will decline -11% year-over-year to 305,000 MT for the 2025/26 season from an estimated 344,000 MT in 2024/25.

Inventory Recovery Adds Pressure to Cocoa Prices

Physical cocoa stocks provide temporary headwinds for cocoa prices. After touching a 10.25-month low of 1,626,105 bags on December 26, ICE-monitored cocoa inventories held at U.S. ports rebounded sharply to a 2-month high of 1,741,172 bags by Wednesday. This inventory buildup, while modest in absolute terms, represents a bearish technical factor that has weighed on cocoa prices despite the longer-term fundamental tightness.

Structural Supply Deficit Emerging: A Long-Term Support for Cocoa Prices

Looking beyond immediate demand weakness, the global cocoa balance sheet is shifting decisively. The International Cocoa Organization (ICCO) dramatically downwardly revised its 2024/25 surplus estimate to just 49,000 MT from a previous projection of 142,000 MT, while simultaneously slashing global cocoa production forecasts to 4.69 million tonnes from 4.84 MMT previously. This marks the first projected surplus in four years, following the catastrophic -494,000 MT deficit in 2023/24—the worst shortfall in over six decades.

Rabobank reinforced this tightening narrative, reducing its 2025/26 global cocoa surplus projection to 250,000 MT from a November forecast of 328,000 MT, signaling that the supply-demand rebalancing is expected to persist into the subsequent marketing year.

Policy Uncertainty and Deforestation Regulations Add Wild Card

A temporary reprieve emerged when the European Parliament approved a one-year postponement of its deforestation regulation (EUDR) on November 26, temporarily easing pressure on cocoa prices. The EU regulation targets deforestation in producing nations supplying key commodities including cocoa into European markets. The delay permits continued EU imports from African, Indonesian, and South American suppliers despite ongoing deforestation concerns, potentially supporting cocoa supplies from these regions.

The intersection of demand destruction, emerging supply deficits, and regulatory uncertainty creates competing pressures on cocoa prices. While current weakness reflects near-term demand capitulation, the longer-term trajectory for cocoa prices appears supported by a fundamentally tightening global cocoa market that will eventually force the industry to adjust.