Market Correction in Cocoa Industries Amid Dollar Rally and Supply-Demand Rebalancing

The cocoa industries are experiencing a significant pullback today, with March ICE NY cocoa futures declining 184 points (-2.95%) and March ICE London cocoa futures down 132 points (-2.94%). This retreat follows a sharp rally earlier in the week, as investors reassess positions amid a stronger US dollar and shifting market dynamics.

Supply Tightening Remains the Core Driver

The Ivory Coast, accounting for roughly one-third of global cocoa production, reported that farmers delivered 59,708 MT of cocoa to ports during the week ended December 28—a 27% drop compared to the same period last year. Year-to-date shipments through late December totaled 1.029 MMT, down 2.0% from 1.050 MMT in the prior year’s equivalent period. This declining supply trajectory has sparked considerable discussion within the cocoa industries about potential constraints on global inventories heading into 2026.

The supply concerns were further underscored by inventory data from US ports. ICE-monitored cocoa stocks held in American facilities fell to a 9.5-month low of 1,626,105 bags last week, suggesting tightness in the physical supply chain. Meanwhile, global production estimates have been revised downward throughout the recent season. The International Cocoa Organization (ICCO) reduced its 2024/25 global cocoa surplus estimate to 49,000 MT from 142,000 MT previously, while slashing production forecasts to 4.69 MMT from 4.84 MMT.

Currency Movements and Market Mechanics

Today’s weakness is directly attributable to the dollar index rising to its highest level in a week, triggering profit-taking among long positions in cocoa futures. A stronger US dollar makes dollar-denominated commodities more expensive for international buyers, dampening demand and encouraging holders to liquidate positions to lock in gains. This mechanical selling pressure counterbalances the underlying bullish sentiment rooted in supply concerns.

Looking ahead, the cocoa industries stand to benefit from substantial institutional buying tied to Bloomberg’s addition of cocoa futures to its flagship Commodity Index (BCOM) beginning in January. Citigroup estimates that this index inclusion could attract approximately $2 billion in fresh capital flowing into New York cocoa contracts—a potentially transformative development for the sector’s price trajectory.

Demand Weakness Tempers Price Optimism

Despite supportive supply dynamics, demand indicators present a sobering picture for cocoa industries participants. Asian cocoa grindings plummeted 17% year-over-year during Q3 to 183,413 MT—the weakest third-quarter performance in nine years. European grindings deteriorated 4.8% year-over-year to 337,353 MT, marking the lowest Q3 level in a decade. North American grindings posted a modest 3.2% gain, though this figure was partially inflated by the inclusion of new reporting entities.

This demand softness reflects broader pressures on chocolate makers and confectioners as consumer purchasing patterns remain subdued globally. The structural weakness in grindings suggests that the cocoa industries may face headwinds even as raw material availability tightens.

Weather and Policy Uncertainties

Favorable weather patterns in West Africa have created cross-currents in cocoa markets. Farmers in the Ivory Coast report that balanced rainfall and sunshine are supporting robust pod development, while Ghanaian producers note that regular precipitation is enhancing tree health ahead of the harmattan season. Chocolate manufacturer Mondelez observed that current pod counts in West Africa are running 7% above the five-year average and materially higher than last year’s harvest, suggesting ample supply potential despite near-term logistical constraints.

The European Union’s decision on November 26 to delay implementation of its deforestation regulation (EUDR) by one year also weighs on sentiment. This postponement permits continued agricultural imports from deforestation-prone regions in Africa, Indonesia, and South America, theoretically increasing cocoa supply availability—a bearish development for prices despite potential long-term sustainability concerns.

Nigerian Production Headwinds

A countervailing factor comes from Nigeria, the world’s fifth-largest cocoa producer. Nigeria’s Cocoa Association projects that 2025/26 production will decline 11% year-over-year to 305,000 MT from an estimated 344,000 MT in the current crop year. Such production declines in a major origin could provide underlying price support as the cocoa industries adjust to shifting supply geography.

Industry Outlook and Long-Term Perspective

The cocoa industries are navigating a complex landscape characterized by geographically fragmented supply patterns, persistent demand weakness, and cyclical policy adjustments. The 2024/25 season represents a notable inflection point: after recording the largest deficit in over 60 years during 2023/24 (−494,000 MT), global cocoa production rebounded 7.4% year-over-year to 4.69 MMT, enabling the sector to move from structural deficit to modest surplus (49,000 MT).

As these conditions continue to evolve, the cocoa industries remain vulnerable to near-term dollar strength and profit-taking, even as medium-term support emerges from declining supplies in key origins and imminent institutional buying from index rebalancing. Market participants will closely monitor Ivory Coast harvest quality, global demand trends, and macroeconomic factors as the sector seeks clearer directional footing.