Cocoa Futures Post Modest Gains as Market Navigates Supply-Demand Crosscurrents

Price Action and Initial Market Direction

Cocoa futures markets moved marginally higher on Wednesday, with March contracts on ICE NY gaining +2 points (+0.03%), while March ICE London cocoa advanced +11 points (+0.25%). The uptick reflects consolidation activity rather than conviction-driven buying, as the market remains anchored between recent trading ranges. London’s outperformance was partly attributed to sterling weakness, as the British pound touched a 1-week low, making cocoa priced in sterling more attractive on a relative basis.

Supply-Side Tightening Takes Center Stage

The fundamental backdrop driving cocoa futures remains supply-focused. Cocoa arrivals at Ivorian ports have decelerated, triggering fresh concerns about global supply adequacy. For the week ending December 28, Ivory Coast farmers delivered 59,708 MT of cocoa to ports—a 27% decline versus the year-prior period. On a cumulative basis, cocoa shipments from Africa’s largest producer totaled 1.029 MMT through December 28 of the current marketing year (October 1 onward), down 2.0% from 1.050 MMT in the corresponding 2023 period. Such data points underscore the ongoing challenge in maintaining pre-pandemic supply levels.

Storage dynamics further reinforce the tightening narrative. ICE-monitored cocoa inventories held at US ports fell to 1,626,105 bags last Friday, marking a 9.5-month low and signaling reduced buffer stock availability for end-users and commodity traders.

Index Inclusion and Structural Buying Potential

A material tailwind for cocoa futures stems from the addition of cocoa contracts to the Bloomberg Commodity Index (BCOM) effective January. According to Citigroup research, this inclusion could trigger approximately $2 billion in dedicated cocoa futures purchases, providing sustained price support independent of fundamental developments. Such index-related inflows have historically provided a structural bid to newly added commodities.

Weather and Crop Development Present Mixed Signals

Favorable agro-meteorological conditions in West Africa are painting a complex supply picture. Farmers in the Ivory Coast report that rainfall interspersed with sunshine is supporting cocoa tree flowering and pod development. Similarly, Ghana’s agricultural reports indicate consistent precipitation supporting plant growth ahead of the harmattan wind season. This weather benignity has been reflected in crop pod counts, which Mondelez disclosed are running 7% above the five-year average and materially higher than the prior-year harvest.

Simultaneously, the Ivory Coast’s main crop harvest has commenced, with farmer sentiment turning optimistic regarding yield and quality prospects. However, this positive production outlook stands in tension with near-term supply absorption concerns.

Revised Global Supply Estimates Signal Structural Rebalancing

Supply forecasting has undergone significant recalibration. On November 28, the International Cocoa Organization (ICCO) slashed its global 2024/25 cocoa surplus estimate to 49,000 MT from a prior projection of 142,000 MT—a dramatic 65% reduction. More strikingly, ICCO lowered global cocoa production expectations for 2024/25 to 4.69 MMT from 4.84 MMT, representing diminished output relative to initial forecasts. This downward revision marks ICCO’s shift to projecting the first cocoa surplus in four years after the record 2023/24 deficit of -494,000 MT (the worst in over 60 years), when production collapsed 12.9% to 4.368 MMT.

Rabobank’s December update reinforced supply tightness concerns, reducing its 2025/26 cocoa surplus estimate to 250,000 MT from a November forecast of 328,000 MT, signaling persistent structural imbalances in global supply-demand equilibrium.

Regulatory Uncertainty: The EUDR Reprieve

On November 26, the European Parliament approved a 1-year delay to the EU Deforestation Regulation (EUDR), which had been designed to restrict imports of cocoa and soybeans from regions experiencing active deforestation. The delay extends the status quo, permitting EU countries to continue sourcing agricultural commodities from African, Indonesian, and South American regions without immediate compliance pressure. While this supports near-term cocoa supply availability, it also signals regulatory ambiguity that could influence long-term African production incentives and investment patterns.

Demand Destruction Tempers Price Enthusiasm

Global cocoa processing has disappointed significantly. Q3 Asia cocoa grindings slumped 17% year-over-year to 183,413 MT—the weakest third-quarter performance in nine years. European cocoa grindings similarly contracted 4.8% year-over-year to 337,353 MT, marking the lowest Q3 result in a decade. North American cocoa grindings expanded 3.2% year-over-year to 112,784 MT, though this figure was distorted by the addition of new reporting entities, suggesting underlying demand weakness masked by statistical revisions.

This grinding data suggests chocolate manufacturers and end-users are managing existing inventory rather than building new positions, constraining spot and forward cocoa futures demand despite favorable price technicals.

Nigerian Production Headwinds Add Supply Offset

Nigeria, the world’s fifth-largest cocoa producer, faces projected output declines. Nigeria’s Cocoa Association forecasts 2025/26 production at 305,000 MT, representing an 11% year-over-year drop from the projected 344,000 MT for 2024/25. September cocoa exports remained unchanged at 14,511 MT year-over-year, suggesting stalled export momentum. These headwinds partially offset the favorable crop developments from Ivory Coast and Ghana, creating a heterogeneous global supply picture.

Market Outlook and Cocoa Futures Positioning

Cocoa futures face competing directional forces. Index-related capital inflows tied to BCOM inclusion, combined with structural inventory declines and revised-lower production forecasts, provide technical and fundamental support. Conversely, weak global grindings, regulatory delays benefiting supply availability, and optimistic West African crop conditions present headwinds to sustained price appreciation. The modest price settlement on Wednesday suggests market participants are digesting these cross-currents without committing to a decisive directional bias, leaving cocoa futures poised for continued consolidation until conviction around global demand recovery or supply shocks emerges.