Cocoa Market Faces Abundant Supply Headwinds as Demand Remains Soft

Cocoa futures declined sharply on Friday, with March contracts on ICE NY falling 0.29% and ICE London slipping 0.03%, extending a month-long downtrend. NY cocoa hit its lowest level in 2.25 years, while London cocoa touched a 2.5-year floor. This sustained pressure reflects a fundamental market imbalance: production continues to outpace consumption, and traders are bracing for this pattern to persist through the next two growing seasons.

Price Declines Signal Extended Bearish Pressure on the Market

The trajectory of cocoa prices tells a cautionary tale. Beyond the daily contract movements, the broader trend reveals how quickly market sentiment has shifted. Prices extended their decline for the fourth consecutive week, signaling that buyers remain cautious. The pullback intensity suggests traders believe additional downside risk exists, particularly as fresh supply data continues to disappoint bulls. This is especially notable given how dramatically cocoa dynamics have reversed from the prior year, when scarcity dominated discussion.

Abundant Supplies Outweigh Growing Production Concerns

The primary driver of price weakness is the persistent surplus of cocoa on world markets. StoneX forecasted that global cocoa would show a surplus of 287,000 metric tons during the 2025/26 season and 267,000 MT for 2026/27—marking a significant reversal from recent years of tight supply. These projections underscore how quickly the market has moved from deficit to surplus territory.

The International Cocoa Organization reported that global cocoa stocks climbed 4.2% year-over-year to 1.1 million metric tons, indicating that accumulated inventory levels continue to build. Interestingly, this abundant inventory situation contrasts sharply with 2023/24, when the market suffered a historic deficit of 494,000 MT—the worst shortfall in more than 60 years. That crisis pushed prices to record levels and prompted production increases worldwide. Now, those additional supplies are hitting the market just as consumption has faltered, creating an unfortunate timing mismatch.

The recovery in global cocoa production has been substantial. After declining 12.9% year-over-year in 2023/24, production rebounded 7.4% to reach 4.69 million MT in 2024/25 according to ICCO estimates. However, this production recovery arrived in a market increasingly resistant to higher prices, making the supply rebound a curse rather than a blessing.

Demand Destruction Across Multiple Regions Weighs Heavily

Consumption weakness has become the story overshadowing supply gains. Barry Callebaut AG, the world’s largest bulk chocolate manufacturer, reported a shocking 22% decline in sales volume within its cocoa division for the quarter ending November 30. The company attributed this drop to “negative market demand and a prioritization of volume toward higher-return segments,” a delicate way of saying that customers were unwilling to pay premium prices for chocolate products.

This demand destruction is not limited to a single region. The European Cocoa Association reported that Q4 European grinding volume fell 8.3% year-over-year to 304,470 MT—worse than the expected 2.9% decline and marking the lowest quarterly grind in 12 years. Similarly, Asian grinders reported Q4 volumes declined 4.8% year-over-year to 197,022 MT according to the Cocoa Association of Asia. North American grinding showed marginally better resilience but essentially stalled, rising just 0.3% year-over-year to 103,117 MT.

These figures represent processors physically using less cocoa, signaling that downstream demand for chocolate is genuinely weak. Consumers have become price-sensitive, and manufacturers are holding the line rather than accept margin compression.

Growing Inventory Levels Complicate the Price Picture

Cocoa inventory stored at US ports has grown substantially in recent weeks, adding to downward price pressure. ICE-monitored stocks hit a low of 1.63 million bags on December 26 but then climbed to 1.78 million bags by Thursday—a 2.5-month high that exceeds the seasonal trough. Historically, rising US inventories tend to suppress prices, as the abundance nearby reduces scarcity premiums and pressures forward contracts.

This inventory rebound is relatively recent but already weighing on sentiment. The combination of abundant global supplies plus swelling US warehouse stocks creates a bearish technical backdrop that extends beyond fundamental analysis into the realm of storage and logistics dynamics.

West African Conditions: Mixed Signals for the Price Outlook

Favorable growing conditions in West Africa present a complicated picture. Tropical General Investments Group recently noted that West African harvests are progressing well, with farmers reporting larger and healthier pods compared to the prior year. Chocolate maker Mondelez confirmed this, reporting that current cocoa pod counts in the region are 7% above the five-year average and “materially higher” than last year’s crop. The Ivory Coast’s main crop harvest has commenced, and producers sound optimistic about yields and quality.

Yet this bounty carries a sting. Lower prices have prompted Ivory Coast farmers to slow their supply to ports. Cumulative Ivory Coast shipments reached 1.20 million MT in the current marketing year through January 25, down 3.2% from 1.24 MMT in the same period a year ago. By restricting shipments, these farmers are attempting to support prices through supply management—a rational response to margin pressure.

Nigeria, the world’s fifth-largest cocoa producer, presents a more supportive picture. Exports fell 7% year-over-year to 35,203 MT in November, and the Nigerian Cocoa Association projects that 2025/26 production will decline 11% to 305,000 MT from an expected 344,000 MT in 2024/25. Smaller Nigerian supplies should theoretically provide price support, but such support appears insufficient to overcome abundant supplies from other regions.

Looking Forward: The Tug of War Between Supply and Demand

The cocoa market faces competing forces. On one side stands abundant supply backed by healthy West African harvests and recovered global production. On the other sits collapsed demand, with consumers and manufacturers retreating from premium prices. Forecasters like Rabobank have trimmed their surplus estimates, cutting the 2025/26 projection to 250,000 MT from a November forecast of 328,000 MT, yet surpluses remain the base case rather than deficits.

For prices to stabilize or recover, either abundant supplies must tighten materially or demand must recover sharply. Neither scenario appears imminent. The cocoa complex will likely remain under pressure until one of these dynamics shifts.