Cocoa Markets Hammered by Faltering Global Demand Outlook

Cocoa futures retreated sharply this week as persistent concerns about weakening buyer appetite weighed heavily on prices across major exchanges. March NY cocoa futures fell 219 points to close -4.02%, while March London cocoa declined 111 points (-2.82%). The commodity hit 7-week lows, signaling intensified pressure from demand-side headwinds that are expected to persist.

Demand Weakness Takes Center Stage

The bearish sentiment hinges primarily on anticipated Q4 cocoa grinding data due this week, which is projected to reveal continued softness in global cocoa consumption. Regional grinding figures have already painted a troubling picture: Asia’s Q3 cocoa grindings slumped 17% year-over-year to just 183,413 MT—marking the weakest third-quarter result in nine years. Europe witnessed similar struggles with Q3 grindings declining 4.8% y/y to 337,353 MT, the lowest in a decade. North America showed modest growth of 3.2% y/y to 112,784 MT, though new reporting participants distorted comparisons.

Supply Dynamics: A Mixed Picture

On the production side, conditions remain complex. West Africa’s favorable growing conditions are bolstering crop prospects, with Tropical General Investments noting that February-March harvests in Ivory Coast and Ghana should benefit from larger, healthier pods compared to prior-year levels. Mondelez confirmed this outlook, reporting that current pod counts in West Africa are 7% above the five-year average and significantly exceed last year’s totals.

However, the world’s largest producer presents a countervailing signal. Ivory Coast cocoa shipments to ports for the new marketing year (October 1–January 11) totaled 1.13 MMT, down 2.6% from 1.16 MMT year-ago, introducing some bullish support for prices amid tightening availability concerns.

Market Support Factors Emerge

One potential catalyst involves cocoa’s addition to the Bloomberg Commodity Index commencing this week. Citigroup estimates this inclusion could trigger as much as $2 billion in index-driven buying of NY cocoa futures. Additionally, the International Cocoa Organization’s revised supply estimates for 2024/25 suggest a tighter global balance—the organization cut its surplus projection to 49,000 MT from 142,000 MT while lowering production estimates to 4.69 MMT from 4.84 MMT. Rabobank similarly revised its 2025/26 surplus forecast downward to 250,000 MT.

Nigeria, the world’s fifth-largest producer, faces structural headwinds. The Nigerian Cocoa Association projects 2025/26 production will decline 11% y/y to 305,000 MT, compared to the prior year’s 344,000 MT estimate. September exports held steady year-over-year at 14,511 MT, offering limited relief.

Regulatory and Inventory Considerations

The European Parliament’s November 26 decision to delay the deforestation regulation (EUDR) by one year has undermined price support by keeping cocoa supplies ample, as EU nations can continue importing agricultural products from deforestation-prone regions. Meanwhile, ICE-monitored US port inventories initially touched a 10-month low of 1,626,105 bags on December 26 but subsequently recovered to 1,675,908 bags by early this week, reducing inventory-based bullish momentum.

The juxtaposition of weakening demand, mixed supply signals, and regulatory uncertainties illustrates a market caught between competing forces—with demand erosion currently gaining the upper hand in pressuring cocoa prices lower.