Cocoa Resilience Emerges as Supply Tightens and Demand Stabilizes

Cocoa futures staged a notable recovery on Friday, with March ICE NY cocoa climbing +110 points (+2.22%) and March ICE London cocoa gaining +62 points (+1.70%). The rally reversed earlier weakness driven by surprising resilience in global grinding demand and tightening supplies, particularly from West Africa.

Demand Signals Stronger Than Expected

Market sentiment shifted after data revealed less-severe demand deterioration than feared. The Cocoa Association of Asia reported that Q4 Asian cocoa grindings declined only -4.8% year-over-year to 197,022 MT—significantly smaller than the anticipated -12% contraction. Meanwhile, North American grindings rose +0.3% year-over-year to 103,117 MT, edging past expectations of flat performance.

This demand stabilization was enough to trigger short covering in cocoa futures markets, lifting prices off Thursday’s lows. The previous day had seen New York cocoa sink to a nearly 2-year low and London cocoa fall to a 1.5-month low on concerns about global consumption weakness.

However, European demand painted a bleaker picture. Q4 European cocoa grindings fell -8.3% year-over-year to 304,470 MT, substantially worse than the expected -2.9% decline and marking the lowest Q4 level in 12 years. This divergence between regions suggests uneven demand recovery across global markets.

Production Pressures Intensify in Key Origin Countries

Nigeria, the world’s fifth-largest cocoa producer, is facing significant headwinds. November cocoa exports declined -7% year-over-year to 35,203 MT, signaling tighter export availability. More concerning, Nigeria’s Cocoa Association projects that 2025/26 cocoa production will tumble -11% year-over-year to 305,000 MT from an anticipated 344,000 MT in the 2024/25 season. This production cliff could materially support prices heading into the next crop cycle.

The Ivory Coast, accounting for about one-third of global cocoa supply, showed a mixed picture. While cumulative shipments to ports for this marketing year (October 1 through January 11) totaled 1.13 MMT—down -2.6% from 1.16 MMT a year earlier—farmers remain optimistic about current harvest quality as the main crop season progresses.

Harvest Prospects Cloud the Outlook

West African growing conditions present a structural challenge to price support. Tropical General Investments Group noted that favorable weather patterns in the Ivory Coast and Ghana are expected to lift February-March cocoa pod production compared with last year, with farmers reporting noticeably larger and healthier cocoa pods.

Chocolate manufacturer Mondelez reinforced this view, stating that the latest cocoa pod count across West Africa stands 7% above the five-year average and materially higher than the previous crop. If this translates into higher future shipments, it could cap the rally despite near-term supply tightness.

Inventory Dynamics Offer Mixed Signals

ICE-monitored cocoa inventories held at US ports hit a 10-month low of 1,626,105 bags on December 26, bolstering the bullish case. However, this advantage has already eroded, with inventories rebounding to a 1.25-month high of 1,680,417 bags by Thursday. The quick reversal suggests limited structural support from storage levels.

Global Supply Outlook Tightens Meaningfully

The International Cocoa Organization (ICCO) substantially reduced its 2024/25 global cocoa surplus estimate to 49,000 MT on November 28, down from a previous 142,000 MT projection. ICCO also cut its 2024/25 production estimate to 4.69 MMT from 4.84 MMT. This marked a dramatic shift from the prior year: ICCO had estimated a -494,000 MT deficit for 2023/24—the largest in over 60 years—reflecting how volatile cocoa balances have become.

For 2025/26, Rabobank last week trimmed its global cocoa surplus projection to 250,000 MT from a November forecast of 328,000 MT, indicating tighter anticipated availability further ahead.

Policy Uncertainty Persists

Price support from tightening fundamentals faces a policy wildcard. On November 26, the European Parliament approved a 1-year delay to the EU Deforestation Regulation (EUDR), which aims to restrict imports of commodities like cocoa from regions experiencing deforestation. The delay permits EU countries to continue importing agricultural products from African, Indonesian, and South American origins where forest loss is occurring—potentially preserving ample supply pathways and capping prices.

Takeaway

Friday’s cocoa rally reflects genuine demand stabilization and supply tightness rather than speculative enthusiasm. However, favorable West African growing prospects and policy delays around the EUDR suggest near-term support may prove limited. Investors should monitor next month’s harvest data and global grinding reports for confirmation of whether this recovery can sustain.