Cocoa Prices Gain Momentum as Asian Demand Surprises and Supplies Tighten

Cocoa prices bounced back sharply following a week of intense selling pressure, with futures contracts recording solid gains. The rebound was triggered by a combination of factors that shifted market sentiment from bearish to cautiously bullish, signaling potential support for prices in the near term.

Smaller-Than-Expected Grindings Spark Buy-Back Rally

The turnaround in cocoa prices was catalyzed by Asian cocoa processing data that came in better than anticipated. The Cocoa Association of Asia reported that Q4 Asian cocoa grindings contracted by 4.8% year-over-year to 197,022 metric tons, significantly outperforming forecasts of a 12% decline. This resilient demand signal prompted traders to unwind short positions, creating upward momentum in the market. North American cocoa grindings also exceeded expectations, rising 0.3% year-over-year to 103,117 MT compared to zero growth expectations, further bolstering sentiment.

Nigerian Supply Squeeze Supports Cocoa Prices

On the supply side, pressures continue to mount from West Africa’s leading producers. Nigeria’s cocoa exports in November fell 7% year-over-year to 35,203 MT, reflecting tightening availability. More significantly, Nigeria’s Cocoa Association projects that the 2025/26 crop year production will plunge 11% year-over-year to 305,000 MT from the previous season’s estimated 344,000 MT. This substantial contraction in Nigeria’s output—the world’s fifth-largest cocoa producer—is providing crucial support for cocoa prices in a market concerned about global availability.

Demand Weakness in Europe Tempers Global Outlook

Despite the resilience shown in Asia, demand signals remain mixed globally. European cocoa consumption weakened considerably, with Q4 European cocoa grindings declining 8.3% year-over-year to 304,470 MT—worse than the 2.9% decline that was anticipated and representing the lowest Q4 performance in 12 years. This disparity between robust Asian demand and struggling European demand creates an uneven demand backdrop that complicates the overall supply-demand balance.

West African Harvest Prospects Add Complexity to Market

The outlook for cocoa prices faces headwinds from favorable growing conditions in West Africa. Tropical General Investments Group noted that improved weather patterns are expected to support the February-March harvest in both the Ivory Coast and Ghana, with farmers observing notably larger and healthier cocoa pods. Mondelez reported that current pod counts in West Africa are running 7% above the five-year average and materially higher than last year’s crop—suggesting potential abundance when the harvest matures.

However, current export data from the Ivory Coast—the world’s largest cocoa producer—provides some restraint on these concerns. Cumulative shipments to ports through January 11 of the current marketing year totaled 1.13 million metric tons, down 2.6% from 1.16 million MT in the comparable prior-year period. Meanwhile, ICE-monitored cocoa inventories in US ports have stabilized at modest levels, with holdings recently at 1.68 million bags after hitting a 10-month low of 1.63 million bags in late December.

Global Supply Outlook Remains Constrained Despite Recovery

Longer-term support for cocoa prices stems from a structurally tighter supply picture. The International Cocoa Organization recently estimated a global cocoa surplus of 49,000 MT for 2024/25—the first surplus to emerge after four consecutive years of deficits. Global cocoa production for 2024/25 is estimated at 4.69 million MT, up 7.4% from the prior year. However, this represents a meaningful reduction from previous forecasts of 4.84 million MT, suggesting supply remains constrained relative to earlier expectations.

Rabobank’s latest outlook is even more cautious, recently cutting its 2025/26 global cocoa surplus forecast to 250,000 MT from a November projection of 328,000 MT, indicating tightening supply prospects ahead. These structural supply constraints may continue to provide underlying support for cocoa prices despite the recent momentum gained from short covering.

A temporary headwind emerged when the European Parliament approved a one-year delay to the deforestation regulation (EUDR), which had been expected to tighten global cocoa supplies by restricting imports from high-deforestation regions. The postponement allows continued agricultural imports from West Africa, Indonesia, and South America, potentially keeping supplies more ample than previously anticipated—a factor that briefly pressured the market earlier this week.