Global Cocoa Rally Driven by Supply Crunch Amid Weakening Chocolate Sales Demand

Cocoa futures have staged a powerful rally, with March ICE NY cocoa climbing +348 points (+5.92%) and March ICE London cocoa surging +247 points (+5.81%), marking 1-month highs. This spike reflects a fundamental mismatch between tightening global supplies and deteriorating end-market demand for chocolate products.

Chocolate Sales Weakness Creates Demand Headwinds

The weakness in chocolate sales has emerged as a critical bearish signal contradicting cocoa’s price rally. Hershey’s CEO disclosed that chocolate sales during the Halloween season were “disappointing,” despite Halloween representing nearly 18% of US annual candy sales in 2024. The disconnect is more pronounced when examining professional cocoa processing data.

Cocoa grindings—a key indicator of processor demand and chocolate production—have weakened across major regions. Asia’s cocoa grindings plummeted -17% year-over-year in Q3 to 183,413 MT, marking the smallest quarterly volume in 9 years. European cocoa grindings fell -4.8% y/y to 337,353 MT, reaching a 10-year low for Q3 processing. Even North American grindings, which rose +3.2% to 112,784 MT, were distorted by the inclusion of new reporting entities, masking underlying weakness.

The broader chocolate consumption picture deteriorated further, with North American chocolate candy sales volume declining more than -21% in the 13 weeks ending September 7 compared to year-ago levels, according to Circana research data.

Supply Collapse Overrides Demand Concerns

Despite lackluster chocolate sales demand, cocoa prices have rallied sharply over the past two weeks, driven by a dramatic tightening in global cocoa availability. On November 28, the International Cocoa Organization (ICCO) slashed its 2024/25 global cocoa surplus estimate to just 49,000 MT from a prior forecast of 142,000 MT—a 65% downward revision. ICCO simultaneously reduced its 2024/25 cocoa production estimate to 4.69 MMT from 4.84 MMT.

Rabobank echoed this supply tightening on Tuesday, cutting its 2025/26 global cocoa surplus estimate to 250,000 MT from a November forecast of 328,000 MT, signaling expectations of continued supply pressure ahead.

Physical cocoa inventories have compressed sharply. ICE-monitored cocoa stocks held in US ports fell to an 8.75-month low of 1,672,131 bags on Tuesday, providing technical support for futures prices. At origin, reduced cocoa shipments from the Ivory Coast—the world’s largest producer—are also constructive. Government data revealed that Ivory Coast farmers shipped 804,288 MT of cocoa to ports this marketing year (October 1 through December 7), down -1.8% from 819,425 MT in the same year-ago period.

New Index Inclusion Catalyzes Futures Buying

A structural catalyst is supporting cocoa futures: NY cocoa’s inclusion in the Bloomberg Commodity Index (BCOM) beginning in January is expected to unlock significant passive buying. Citigroup estimates that BCOM inclusion could attract as much as $2 billion in cocoa futures purchases during the first week of January alone, as index-tracking commodity funds rebalance their positions.

West Africa Production Dynamics Cut Both Ways

West Africa’s cocoa production picture remains mixed. Favorable weather—a combination of rain and sunshine—is supporting cocoa tree bloom and pod development. In Ghana, regular rainfall has bolstered cocoa tree and pod growth ahead of the critical harmattan season. Ivory Coast farmers report that dry weather has aided the harvesting and drying of cocoa beans.

Chocolate maker Mondelez reported that the latest cocoa pod count in West Africa stands 7% above the five-year average and is “materially higher” than last year’s crop. The Ivory Coast’s main crop harvest has recently begun, and farmers express optimism regarding quality, suggesting potential for bumper supplies in the coming months.

This production strength contrasts with supply concerns and explains why cocoa futures spiked briefly to 1.75-year lows on November 19 on expectations of abundant West African cocoa supplies before reversing sharply upward.

Policy Support Prop Up Market Sentiment

Policy developments have buoyed cocoa sentiment. On November 26, the European Parliament approved a 1-year delay to the EU deforestation regulation (EUDR), which aims to restrict imports of commodities including cocoa from regions experiencing deforestation. The postponement permits continued EU imports of agricultural products from Africa, Indonesia, and South America where deforestation practices persist, potentially supporting broader cocoa supply availability.

Conversely, on November 14, the Trump administration dropped proposed 10% reciprocal tariffs on non-US commodities including cocoa and eliminated the threatened 40% tariff on food imports from Brazil—one of the world’s top 10 cocoa-producing countries. The removal of Brazil-specific tariffs eliminated a near-term supply disruption risk.

Supply Constraints from Top Producers Offset Production Gains

Despite West Africa’s favorable production outlook, supply headwinds persist in other regions. Nigeria, the world’s fifth-largest cocoa producer, faces structural production declines. Nigeria’s Cocoa Association projects that 2025/26 cocoa production will tumble -11% y/y to 305,000 MT from a projected 344,000 MT in the current crop year. Nigeria’s September cocoa exports remained flat y/y at 14,511 MT, indicating limited export momentum.

Historical context underscores cocoa’s precarious supply situation. On May 30, ICCO revised the 2023/24 global cocoa deficit to -494,000 MT, the largest deficit in more than 60 years, with production collapsing -12.9% y/y to 4.368 MMT. The global cocoa stocks-to-grindings ratio plummeted to a 46-year low of 27.0%, reflecting severe inventory depletion.

The current 49,000 MT surplus projection for 2024/25 marks the first surplus in four years, yet this modest cushion appears insufficient to offset structural supply concerns and inventory rebuilding needs, particularly as chocolate sales remain under pressure and global cocoa demand weakens.

This article is for informational purposes only and should not be construed as investment advice. All data presented reflects publicly available information as of the publication date.