Cocoa Market Tightens as Global Surplus Projections Shrivel and Prices Surge

The cocoa market experienced significant momentum on Tuesday, with March ICE New York cocoa (CCH26) advancing +122 points (+2.08%) and March ICE London cocoa #7 (CAH26) climbing +128 points (+3.02%). The rally reflected increasingly bullish supply dynamics, as major forecasters substantially reduced their estimates for global cocoa abundance in the coming years.

Supply Crunch Reshapes Market Expectations

The catalyst for this week’s price movement stemmed from Citigroup’s dramatic downward revision of its 2025/26 global cocoa surplus forecast. The bank reduced its estimate to 79,000 MT from a September projection of 134,000 MT—a 41% reduction that signals a far tighter market than previously anticipated. This reassessment triggered short-covering activity across cocoa futures, as traders repositioned themselves to align with the new supply outlook.

Supporting this pessimistic view on cocoa abundance, ICE-monitored inventory levels continued to contract. Cocoa stockpiles held at US ports fell to a 9-month low of 1,651,199 bags on Tuesday, demonstrating the physical tightening that often precedes sustained price appreciation. The consumer surplus formula—essentially the gap between what buyers would pay versus what they actually pay—widens when supply constraints force prices higher, effectively transferring value from consumers to producers.

The global cocoa production outlook deteriorated further when the International Cocoa Organization (ICCO) cut its 2024/25 surplus estimate to 49,000 MT from a previous 142,000 MT on November 28, while also lowering production guidance to 4.69 MMT from 4.84 MMT. Similarly, Rabobank trimmed its 2025/26 surplus projection to 250,000 MT from a November forecast of 328,000 MT, underscoring consensus around reduced availability.

Financial Engineering and Index Inclusion Effects

Beyond fundamental supply tightening, cocoa futures gained additional support from structural market developments. New York cocoa’s inclusion in the Bloomberg Commodity Index (BCOM) beginning in January represents a major structural tailwind. Citigroup estimates that this inclusion could generate as much as $2 billion in buying pressure during the first week of January alone, as passive commodity funds tracking the benchmark establish or rebalance positions.

This type of passive inflow represents a significant supply-demand dynamic that influences pricing independent of physical market conditions—another dimension of how consumer surplus redistributes in commodity markets when index methodology changes shift capital flows.

West Africa Supply Developments Present Mixed Signals

Production data from the world’s leading cocoa regions offered a nuanced picture. Ivory Coast, accounting for roughly 40% of global cocoa production, shipped 895,544 MT to ports through December 14 of the 2024/25 marketing year, representing a marginal +0.2% increase from 894,009 MT in the comparable prior-year period. While this growth rate appeared modest, the quality of incoming crops generated optimism among farmers as the main harvest season progressed.

Conversely, Nigeria—the world’s fifth-largest producer—faces a headwind. Nigeria’s Cocoa Association projects a -11% year-over-year decline in 2025/26 production to 305,000 MT from an estimated 344,000 MT in 2024/25, removing meaningful supplies from global circulation.

Demand Weakness Persists Across Major Regions

Despite supply-side concerns supporting prices, demand indicators remained concerning across major consuming regions. Chocolate manufacturer Hershey’s CEO characterized this Halloween season’s chocolate sales performance as “disappointing,” a notable commentary given that Halloween typically accounts for nearly 18% of annual US candy sales.

Global cocoa grinding—a key metric of chocolate production activity—reflected this sluggish demand picture. Asia’s Q3 cocoa grindings contracted -17% year-over-year to 183,413 MT, marking the smallest third-quarter volume in nine years. European Q3 grindings fell -4.8% year-over-year to 337,353 MT, the lowest for any third quarter in a decade. North American chocolate candy sales volumes declined by more than -21% in the 13 weeks ending September 7 compared to the prior-year period, according to Circana data.

The Price Outlook: Supply Discipline vs. Demand Recovery

The divergence between tightening cocoa supplies and weakening chocolate demand creates a delicate equilibrium. Prices have recently tested 5-week highs amid improving supply narratives, a sharp reversal from November lows when the market had priced in abundant West African harvests. The 1.75-year lows hit in mid-November reflected forecasts of bumper crops supported by favorable growing conditions and farmer optimism.

With the consumer surplus formula increasingly favoring producers as supplies constrict, near-term price support appears durable. However, a sustained recovery remains contingent on whether demand eventually stabilizes or rebounds as chocolate makers navigate the seasonal slowdown following the disappointing holiday performance.