Cocoa Futures Stage Sharp Recovery as Supply Tightening Drives Strategic Price Jump

Market Momentum Accelerates

Cocoa futures markets experienced significant upward movement on Tuesday, with March ICE New York cocoa contracts advancing 122 points to close +2.08%, while March ICE London cocoa climbed 128 points for a +3.02% gain. The rally reflected shifting market dynamics as traders repositioned ahead of structural changes expected in early 2025. Short-covering activity amplified the price jump, suggesting accumulating bullish sentiment after months of oversupply concerns.

Supply Outlook Undergoes Major Revision

The catalyst for Tuesday’s price jump came from Citigroup’s substantial downward revision of global cocoa surplus forecasts. The investment bank slashed its 2025/26 surplus estimate to just 79,000 MT—less than 60% of its September projection of 134,000 MT. This dramatic cut signaled that market consensus had fundamentally shifted regarding global cocoa availability.

The International Cocoa Organization (ICCO) had previously set the tone for tightening concerns. On November 28, ICCO reduced its 2024/25 global cocoa surplus estimate from 142,000 MT to 49,000 MT and lowered production forecasts to 4.69 MMT from 4.84 MMT. Rabobank independently echoed similar concerns, cutting its 2025/26 surplus estimate to 250,000 MT from its November forecast of 328,000 MT.

Inventory Compression Supports Price Momentum

Physical cocoa inventories monitored by ICE have contracted sharply, hitting nine-month lows. US port cocoa holdings fell to 1,651,199 bags on Tuesday, reflecting tighter logistics and increased utilization by chocolate manufacturers. This inventory compression historically supports sustained price strength by limiting spot selling.

Structural Index Changes Create Buying Opportunity

A transformative development for cocoa markets arrives in January 2025: inclusion of New York cocoa futures in the Bloomberg Commodity Index (BCOM). Citigroup estimates this benchmark shift could trigger approximately $2 billion in passive fund inflows during the first week of January as index-tracking vehicles rebalance. Such structural buying represents a predictable demand driver independent of fundamental supply-demand dynamics.

West African Production: Mixed Signals

Ivory Coast cocoa arrivals at ports reached 895,544 MT from October 1 through December 14, showing minimal year-over-year growth of +0.2% versus 894,009 MT in the same 2023 period. As the world’s largest producer, this modest growth contrasts sharply with earlier bullish production forecasts from six months ago. Chocolate manufacturer Mondelez reported cocoa pod counts in West Africa running 7% above the five-year average, though this advantage appears less commanding than previously anticipated.

Ghana’s production environment remains supportive, with favorable weather enabling rapid pod development. The Ivory Coast’s main crop harvest has commenced with farmer confidence intact regarding quality, suggesting production will likely meet current projections without significant disruption.

Demand Weakness Weighs on Longer-Term Outlook

Despite the tactical price jump, underlying demand indicators paint a softer picture. Hershey’s October announcement of “disappointing” Halloween chocolate sales raised questions about consumer appetite, particularly notable since Halloween represents nearly 18% of annual US candy sales. Third-quarter global cocoa grindings deteriorated across key regions: Asia’s grindings fell -17% year-over-year to 183,413 MT (the weakest Q3 in nine years), while Europe’s grind fell -4.8% to 337,353 MT (lowest in a decade). North American chocolate sales volume contracted -21% in the 13 weeks through September 7.

Nigerian Production Headwind Emerges

Nigeria’s Cocoa Association projects production will contract -11% in 2025/26 to 305,000 MT from the prior year’s 344,000 MT. As the world’s fifth-largest producer, this decline removes a potential supply cushion that could have offset West African weather disruptions. Nigerian cocoa exports remained flat year-over-year at 14,511 MT in September.

Historical Context: From Crisis to Balance

The current supply tightening represents a stark reversal from conditions two years prior. ICCO reported the 2023/24 season featured a -494,000 MT deficit—the largest in over 60 years—pushing global stocks-to-grindings ratios to a 46-year low of 27.0%. That crisis prompted production recovery efforts, and ICCO’s May 2024 data showed 2024/25 global production rebounded +7.4% year-over-year to 4.69 MMT, creating the first surplus in four years at 49,000 MT.

Deforestation Regulation Delay Removes Near-Term Pressure

The European Parliament’s November 26 approval of a one-year delay to the EUDR (EU Deforestation Regulation) eliminated an immediate supply headwind. This regulation targets deforestation-linked commodities including cocoa, and the postponement allows continued EU agricultural imports from Africa, Indonesia, and South America despite deforestation concerns. Without this delay, supply discipline might have accelerated earlier, moderating the recent price jump.

Market Strategy Going Forward

The combination of downward supply revisions, inventory compression, structural index demand, and production challenges in Nigeria creates a multi-layered support structure for cocoa prices in early 2025. While demand weakness remains a countervailing force, the tactical positioning of short-covering and passive index flows suggests momentum may persist through January’s benchmark rebalancing period.