Cocoa Supply Tightening Reverses Price Pressure as Short Covering Accelerates

March futures contracts for cocoa surged higher on Tuesday, with ICE NY cocoa gaining 90 points (up 2.14%) while ICE London cocoa rose 91 points (up 3.04%), marking a second consecutive session of strength. The rally reflects renewed interest from traders unwinding short positions as shipment patterns from the world’s largest cocoa-producing nation shift dramatically.

Cocoa Deliveries Slow, Triggering Short-Squeeze Dynamics

A significant deceleration in cocoa shipments to Ivorian ports is reshaping market sentiment. Recent data shows that cumulative cocoa arrivals for the current marketing year (October 1, 2025 through February 1, 2026) reached 1.23 million metric tons, representing a 4.7% year-over-year decline from 1.24 MMT during the equivalent prior-year window. This slowdown has prompted traders managing bearish bets to reassess their positions, with short covering providing immediate upward price momentum.

The reprieve comes after last Friday’s painful session, when ICE NY cocoa touched a 2.25-year low and London cocoa fell to a 2.5-year trough. That weakness reflected the persistent shadow of oversupply and muted buyer interest that have dominated the market landscape.

Cocoa Demand Weakness Offsets Supply Concerns

Despite tightening supply metrics, fundamental demand for cocoa products remains deeply challenged. Global cocoa stocks climbed 4.2% year-over-year to 1.1 million metric tons, according to January data from the International Cocoa Organization, illustrating that abundance still characterizes global inventory positions.

Chocolate manufacturers worldwide are grappling with weak consumer demand. Barry Callebaut AG, the industry’s largest bulk producer, reported a 22% contraction in cocoa division sales volume for the quarter ending November 30, citing “negative market demand and a prioritization of volume toward higher-return segments.” This demand erosion reflects consumers’ persistent resistance to elevated chocolate pricing.

Grinding activity—a key barometer of cocoa processing demand—painted an even bleaker picture across major regions. European cocoa grindings for Q4 contracted 8.3% year-over-year to 304,470 MT, significantly undershooting analyst expectations of a 2.9% decline and marking the lowest quarterly result in 12 years. Asia’s Q4 grindings fell 4.8% year-over-year to 197,022 MT, while North American grindings eked out just a 0.3% annual gain to 103,117 MT, signaling industry-wide consumption weakness.

Cocoa Inventories Rebound Despite Earlier Lows

ICE-monitored cocoa holdings at U.S. ports have recaptured recent highs, creating a headwind for price appreciation. After hitting a 10.5-month nadir of 1,626,105 bags on December 26, stockpiles climbed to 1,782,921 bags by Tuesday—a 2.5-month peak—introducing bearish supply dynamics that counter the near-term short-covering rally.

Favorable West African Conditions and Nigeria’s Weakness Weigh on Cocoa

Meteorological developments in West Africa are expected to support robust harvests. Tropical General Investments Group recently highlighted favorable growing conditions anticipated through the February-March harvest window in Ivory Coast and Ghana, with farmers reporting larger and healthier pods compared to the prior-year equivalent. Mondelez corroborated this outlook, noting that the latest pod count across West Africa sits 7% above the five-year mean and “materially higher” than last year’s tally.

Conversely, supply constraints from Nigeria—the world’s fifth-largest cocoa producer—offer modest price support. Nigerian cocoa exports contracted 7% year-over-year in November to 35,203 MT. More significantly, Nigeria’s Cocoa Association projects a 11% production decline for 2025/26, forecasting output of 305,000 MT against the 344,000 MT produced in the prior crop year.

The Bigger Cocoa Picture: Deficits Turning to Modest Surplus

Structural shifts in the global cocoa balance are reshaping longer-term price expectations. The International Cocoa Organization cut its 2024/25 cocoa surplus estimate to 49,000 MT in November, down sharply from its prior 142,000 MT projection. ICCO simultaneously lowered 2024/25 production estimates to 4.69 MMT from 4.84 MMT, marking the first surplus year in four years after the organization reported a massive 494,000 MT deficit in 2023/24—the largest shortfall in over 60 years.

Looking ahead to 2025/26, Rabobank recently trimmed its global cocoa surplus projection to 250,000 MT from an earlier 328,000 MT forecast, while StoneX maintains expectations for a 287,000 MT surplus in 2025/26 and 267,000 MT in 2026/27. These forecasts underscore that the cocoa market remains caught between lingering demand skepticism and a gradual restoration of supply adequacy after years of acute scarcity.