Cocoa Market Shows Resilience as Supply Pressures Mount

Recent trading activity in the cocoa market has revealed a striking contradiction: while global supplies face mounting constraints, demand indicators from key regions are sending mixed but ultimately supportive signals. This dynamic in the cocoa market is reshaping price trajectories and reshuffling investor sentiment around one of agriculture’s most volatile commodities.

March NY cocoa futures jumped 110 points (+2.22%) in recent trading, while London cocoa gained 62 points (+1.70%), marking a notable reversal from the previous session’s weakness. The turnaround was catalyzed by data from Asia that defied bearish expectations, triggering short-covering and renewed buying interest.

Asian Demand Defies Expectations, Signaling Market Stability

The Cocoa Association of Asia reported that Q4 Asian cocoa grindings declined by just 4.8% year-over-year to 197,022 MT—substantially better than the -12% forecast. This smaller-than-anticipated contraction proved significant enough to spark a wave of short covering among traders who had positioned for deeper demand deterioration. North America also delivered positive surprise, with Q4 cocoa grindings rising 0.3% year-over-year to 103,117 MT against expectations of flat performance.

However, demand-side resilience from Asia and North America stood in contrast to weakness from Europe. The European Cocoa Association reported that Q4 European cocoa grindings plunged 8.3% year-over-year to 304,470 MT, substantially worse than the anticipated 2.9% decline and marking the lowest Q4 performance in 12 years. This divergence highlights growing fragmentation in global cocoa market dynamics.

Supply Constraints from Major Producers Tighten the Market

The supply picture remains significantly tighter than in prior years, with major producing regions facing headwinds. Nigeria, the world’s fifth-largest cocoa producer, reported November exports of 35,203 MT, down 7% year-over-year. More concerning for the cocoa market, Nigeria’s Cocoa Association projects that the 2025/26 season will see production fall 11% to 305,000 MT from the prior year’s expected 344,000 MT.

The Ivory Coast, which holds the position as the world’s largest cocoa producer, presents a more nuanced picture. Cumulative shipments to ports through January 11 reached 1.13 MMT for the new marketing year, down 2.6% from the prior-year period’s 1.16 MMT. While this signals declining offtake, favorable growing conditions reported by Tropical General Investments Group and Mondelez suggest the February-March harvest could bolster supplies. Mondelez noted that the current cocoa pod count in West Africa sits 7% above the five-year average, offering modest relief to a market long haunted by supply anxieties.

Inventory Pressures and the Tightening Global Supply Outlook

Inventory dynamics present a complex picture for the cocoa market. ICE-monitored US port inventories fell to a 10-month low of 1,626,105 bags on December 26 before recovering modestly to 1,680,417 bags by mid-January, suggesting that supply remains relatively constrained despite the recent recovery.

The International Cocoa Organization has fundamentally shifted its outlook for global cocoa balances. In November, ICCO slashed its 2024/25 global surplus estimate from 142,000 MT to just 49,000 MT, simultaneously cutting global production forecasts from 4.84 MMT to 4.69 MMT. This represented a dramatic repricing of market conditions after ICCO had previously estimated a massive 494,000 MT deficit for 2023/24—the largest shortfall in over 60 years. The transition from historic deficits to modest surpluses—the first surplus in four years—marks a critical inflection point for the cocoa market.

Rabobank reinforced this tightening thesis by cutting its 2025/26 global surplus estimate from 328,000 MT to 250,000 MT, signaling continued conviction in supply-constrained fundamentals.

Policy Backdrop: EU Deforestation Delay Moderates Supply Pressures

One headwind lifted when the European Parliament approved a one-year delay to the EU Deforestation Regulation (EUDR) in November. The EUDR aims to restrict imports of commodities including cocoa from regions experiencing deforestation. The delay provides breathing room for producers in Africa, Indonesia, and South America, ensuring ample supplies can continue flowing into EU markets—a moderating force on the cocoa market that partially offsets production concerns from key regions.

The present cocoa market backdrop thus reflects the clash between structural supply tightness and episodic demand volatility, with policy interventions occasionally tilting the balance.