Cocoa Market Faces Conflicting Signals as Supply Tightens and Demand Remains Weak

The cocoa market is caught between competing pressures this week. While fundamental demand weakness continues to weigh on prices globally, a recent slowdown in Ivory Coast cocoa shipments to ports has triggered short covering and sparked a temporary price rally. On Tuesday, March ICE NY cocoa futures closed up 90 points (+2.14%), and March ICE London cocoa #7 gained 91 points (+3.04%), marking the second consecutive session of gains. The rebound reflects traders covering short positions as supply dynamics shift in West Africa, though the broader market backdrop remains challenged by persistent oversupply and anemic consumption.

Short Covering Drives Cocoa Prices Higher This Week

The timing of this cocoa recovery is significant. Monday’s shipment data showed that Ivory Coast farmers delivered only 1.23 million metric tons (MMT) to ports during the current marketing year (October 1, 2025 through February 1, 2026), representing a 4.7% decline compared to 1.24 MMT in the same period last year. Since Ivory Coast controls roughly 40% of global cocoa supply, any slowdown in its port deliveries immediately captures trader attention. The pullback in shipments created an attractive opportunity for those holding short positions, prompting aggressive covering that lifted prices across both New York and London exchanges.

This reprieve comes after cocoa prices hit multi-year lows just days earlier. Last Friday, NY cocoa fell to a 2.25-year low while London cocoa sank to a 2.5-year bottom, reflecting the weight of abundant global supplies and inadequate end-user demand. The recent two-day rally, while notable, remains relatively modest given the magnitude of the selling pressure that preceded it.

Global Demand Remains Under Pressure from High Chocolate Prices

The fundamental challenge for cocoa prices lies on the demand side. Consumers worldwide are increasingly resistant to the elevated cost of chocolate products, forcing manufacturers to reassess their purchasing strategies. Barry Callebaut AG, the world’s largest bulk chocolate maker, reported a particularly sharp 22% decline in sales volume within its cocoa division for the quarter ending November 30. The company attributed the weakness to “negative market demand and a prioritization of volume toward higher-return segments within cocoa,” indicating that even premium chocolate makers cannot sustain demand at current cocoa-inflated price levels.

Grinding data across major regions underscores this demand deterioration. The European Cocoa Association reported that Q4 European cocoa grindings fell 8.3% year-over-year to 304,470 MT—a steeper decline than the anticipated 2.9% drop and marking the weakest Q4 performance in 12 years. Asian grindings were similarly disappointing, with the Cocoa Association of Asia reporting a 4.8% year-over-year decline to 197,022 MT in Q4. North America showed only marginal resilience, with the National Confectioners Association reporting a meager 0.3% year-over-year increase to 103,117 MT. This synchronized weakness across all major consumption regions signals structural demand headwinds that price declines alone may not quickly resolve.

Supply Outlook Tightens Despite Abundant Current Inventories

A paradox currently defines the cocoa market: inventories remain elevated even as long-term supply projections have been revised downward. Since hitting a 10.5-month low of 1,626,105 bags on December 26, ICE-monitored cocoa inventories held at US ports have rebounded to 1,782,921 bags by Tuesday, climbing to a 2.5-month high. The recovery in warehouse stocks represents a bearish factor for near-term prices, as ample supplies remain available to satisfy current demand.

However, forward-looking supply estimates paint a different picture. On November 28, the International Cocoa Organization (ICCO) cut its global 2024/25 cocoa surplus projection to just 49,000 MT from a previous estimate of 142,000 MT, while simultaneously lowering 2024/25 production to 4.69 MMT from 4.84 MMT. StoneX forecasts an even tighter scenario, projecting a 287,000 MT global surplus for 2025/26 and a 267,000 MT surplus for 2026/27. Rabobank recently trimmed its 2025/26 surplus estimate to 250,000 MT from 328,000 MT previously, signaling growing conviction that the supply picture is tightening relative to expectations from just months ago.

This tightening follows one of the most severe supply crises in modern history. In May, ICCO revised the 2023/24 global cocoa deficit to negative 494,000 MT—the largest deficit in over 60 years—following a 12.9% year-over-year production decline to 4.368 MMT. December’s forecast of a 49,000 MT surplus for 2024/25 represented the first surplus in four years, signaling at least a temporary stabilization after the worst shortage period on record.

Favorable growing conditions in West Africa provide additional support for a tighter supply trajectory. Tropical General Investments Group recently reported that weather patterns in West Africa are expected to bolster February-March harvests in both Ivory Coast and Ghana, with farmers observing larger and healthier cocoa pods compared to the same period last year. Mondelez disclosed that the latest pod counts in West Africa are running 7% above the five-year average and materially higher than the prior year’s crop. These observations suggest that this year’s main harvest season could deliver robust yields, though quality improvements and higher volumes will take months to translate into actual port deliveries.

Nigeria Risk and Long-Term Market Stabilization

A countervailing supply headwind emerges from Nigeria, the world’s fifth-largest cocoa producer. Nigeria’s November cocoa exports contracted 7% year-over-year to 35,203 MT, while the country’s Cocoa Association projects 2025/26 production will fall 11% year-over-year to 305,000 MT from the prior year’s anticipated 344,000 MT. This deterioration in one of the few remaining large producers outside Ivory Coast and Ghana adds friction to global supply growth despite the more optimistic harvests expected in West Africa’s two dominant regions.

The cocoa market’s near-term trajectory will likely remain volatile, swinging between short-covering rallies on supply news and selling pressure from persistent demand weakness and existing inventory levels. Traders must navigate a market where 60-year supply deficits have given way to surpluses, yet forward projections suggest that normalization—not sustained oversupply—defines the structural outlook beyond 2025/26.