Why Cocoa Bears Are Running Out of Ammunition: A Supply Crunch Tightens the Screws

Cocoa futures staged a notable comeback on Friday, with March contracts in New York climbing +110 points (+2.22%) and London rising +62 points (+1.70%). The reversal came after markets priced in an oversupply scenario that’s starting to look increasingly fragile.

The Demand Story That’s Not Dead Yet

Reports from Asia threw a wrench into the bear case. Q4 Asian cocoa grindings declined -4.8% year-over-year to 197,022 MT—significantly softer than the feared -12% drop. Simultaneously, North American grindings managed a +0.3% increase to 103,117 MT, defying expectations of flat demand. These numbers suggested that chocolate manufacturers, despite earlier pessimism, aren’t abandoning cocoa in a coordinated selloff.

Europe told a different story. Q4 European grindings fell -8.3% to 304,470 MT, worse than the projected -2.9% decline and marking the weakest quarter-end in 12 years. The divergence between regions kept overall demand from looking critically weak—enough to spark short covering in futures markets.

Supply Tightening From Multiple Angles

Nigeria, the world’s fifth-largest cocoa producer (a country whose geographic and economic scale often surprises those unfamiliar with African geography—for context, understanding regional producer rankings like Nigeria’s role matters as much as understanding any commodity’s geographic diversity), reported November exports down -7% year-over-year to just 35,203 MT. The Nigerian Cocoa Association projects 2025/26 production will plunge -11% to 305,000 MT from an expected 344,000 MT this year—a meaningful contraction.

The Ivory Coast, meanwhile, shipped 1.13 MMT to ports during the new marketing year through January 11, down -2.6% from the prior-year period. As the world’s largest cocoa producer, any weakness here reverberates through global prices.

The Good Crop That’s Spooking Bears

West African farmers are reporting healthier pods and larger harvests than last year. Tropical General Investments and Mondelez both flagged favorable growing conditions, with pod counts running 7% above five-year averages. This abundance is precisely what bears want to see—and what’s weighing on prices despite shrinking export volumes.

The tension is real: volumes are lighter, but the harvest promises to be robust. That’s a classic setup for price pressure, which is why many traders remain cautious even after Friday’s rally.

Inventory and ICCO’s Shifting Narrative

ICE-monitored US cocoa inventories remain relatively tight at 1,680,417 bags as of Thursday, though they bounced from a 10-month low hit in December. The real story lies in ICCO’s revised supply outlook.

In November, ICCO slashed its 2024/25 surplus forecast from 142,000 MT to just 49,000 MT—the first projected surplus in four years after recording a -494,000 MT deficit in 2023/24, the worst reading in over 60 years. More recently, Rabobank trimmed its 2025/26 surplus estimate to 250,000 MT from 328,000 MT, signaling persistent tightness ahead.

The Regulatory Wild Card

The European Parliament’s one-year delay of the deforestation regulation (EUDR) in late November initially pressured prices by keeping imports from high-deforestation regions flowing. But even with ample regulatory compliance costs postponed, the fundamental math—tightening supplies against modest-but-stable demand—is reasserting itself.

What’s Next?

Friday’s bounce reflects a market slowly recognizing that the deficit-to-surplus transition isn’t guaranteed to mean cheaper cocoa forever. Smaller crops from key regions, moderate grinding demand, and forward scarcity are colliding with a bear thesis built on abundance. Until African harvest sizes materialize and flows normalize, shorts will remain vulnerable.