Cocoa Markets Face Persistent Headwinds Despite Mild Recovery Rally

Cocoa futures posted a mild rebound on Thursday as dollar weakness sparked some short covering activity. March ICE NY cocoa (CCH26) closed up 27 points (+0.65%), while March ICE London cocoa (#7, CAH26) gained 29 points (+1.01%). Though the gains were modest, they provided a brief respite to a market that has been under considerable selling pressure in recent weeks. However, underlying fundamentals suggest this recovery may face stiff resistance as structural imbalances continue to weigh on the commodity.

Supply Glut and Demand Erosion Remain Primary Price Headwinds

Recent weeks have seen cocoa prices slide to multi-year lows, with London cocoa posting a 2.25-year low on Wednesday and New York cocoa hitting a 2-year low last Friday. The core driver remains a significant oversupply situation coupled with eroding demand at elevated price levels.

Global cocoa supplies are proving abundant, with forecasters projecting continued surpluses. StoneX recently predicted a global surplus of 287,000 MT for the 2025/26 season and 267,000 MT for 2026/27. Meanwhile, the International Cocoa Organization (ICCO) disclosed that global cocoa stocks expanded 4.2% year-over-year to 1.1 MMT, indicating mounting inventory pressures.

On the demand side, high chocolate prices have triggered consumer resistance that is translating into measurable volume declines. Barry Callebaut AG, the world’s largest bulk chocolate manufacturer, reported a -22% plunge in cocoa division sales volume for the quarter ending November 30, attributing the drop to “negative market demand and a prioritization of volume toward higher-return segments.” This weakness extends across the processing industry globally. European cocoa grindings tumbled 8.3% year-over-year in Q4 to 304,470 MT—the lowest Q4 performance in 12 years and substantially worse than the expected -2.9% decline. Asian cocoa grindings fell 4.8% year-over-year to 197,022 MT, while North American grindings posted merely +0.3% growth to 103,117 MT, signaling widespread demand softness.

West African Output and Inventory Dynamics Shape Near-Term Direction

Despite the broad demand weakness, West African harvest prospects remain favorable, adding downward pressure on valuations. Tropical General Investments Group noted that strong growing conditions in West Africa are expected to yield larger and healthier cocoa pods during the February-March harvest in the Ivory Coast and Ghana. Chocolate maker Mondelez indicated that the current pod count in West Africa sits 7% above the five-year average and materially higher than the prior year, suggesting robust production ahead.

Notably, Ivory Coast farmers have been withholding supplies in response to depressed prices. Cumulative shipments through January 25, 2026 reached 1.20 MMT—down 3.2% from the prior year’s 1.24 MMT during the same period. This supply withholding provides mild support to prices, though it appears insufficient to offset the broader demand challenges.

On the inventory front, ICE-monitored cocoa stocks held at U.S. ports have climbed to a 2.5-month high of 1,775,219 bags, rebounding from a 10.5-month low of 1,626,105 bags recorded on December 26. This inventory recovery represents a bearish factor for price recovery. Nigeria, the world’s fifth-largest producer, offers a contrarian signal with November exports falling 7% year-over-year to 35,203 MT. Nigeria’s Cocoa Association projects 2025/26 production will decline 11% year-over-year to 305,000 MT from an estimated 344,000 MT in 2024/25, providing modest support from tighter supply outside the major West African producers.

Market Recovery Constrained by Structural Imbalances

The recent mild upswing reflects temporary technical buying rather than fundamental improvement. ICCO’s November revision of the 2024/25 surplus estimate downward to 49,000 MT from 142,000 MT marked the first surplus in four years, yet the organization still projects production at 4.69 MMT. Meanwhile, Rabobank reduced its 2025/26 surplus forecast to 250,000 MT from a November projection of 328,000 MT—still indicating material oversupply ahead.

The market has experienced a dramatic reversal from the structural deficits that characterized earlier periods. ICCO’s May 2025 estimate revealed a 2023/24 deficit of -494,000 MT, the largest shortfall in over six decades, when production plummeted 12.9% year-over-year to 4.368 MMT. The transition to 2024/25 surplus reflects a recovery in production (+7.4% year-over-year), but demand destruction has proven even more dramatic.

The mild recovery witnessed on Thursday underscores the tension between temporary technical factors and persistent fundamental weakness. While dollar softness can trigger periodic short covering, the outlook remains constrained by excess global supplies, subdued chocolate demand, and substantial inventory accumulation that will likely cap any sustained price appreciation in the near term.