Cocoa Futures Market Tests Support Amid Mixed Signals from Supply and Demand

Cocoa cacao contracts experienced pullback pressure heading into the weekend, with March delivery NY cocoa retreating 13 points (-0.22%) Friday, while March London cocoa futures dropped 87 points (-2.02%) on Wednesday before markets closed for holiday observance. The modest declines reflect profit-taking activity after earlier weekly gains, though underlying support mechanisms remain in place for the cacao futures market.

Bloomberg Index Inclusion Driving Strategic Buying Appetite

A significant structural catalyst for cocoa cacao prices stems from the anticipated introduction of cocoa futures contracts to the Bloomberg Commodity Index (BCOM) effective January. Citigroup’s analysis suggests this inclusion could trigger approximately $2 billion in buying flows directed toward NY cocoa cacao futures, potentially providing a strong technical floor for prices.

Inventory Tightness Supports Price Foundation

Port-level supply conditions offer additional underpinnings for the cacao market. ICE-monitored inventories of cocoa held at US ports contracted to 1,626,105 bags Friday—marking a 9.5-month low—signaling tightening near-term availability that favors price stability for cocoa cacao futures contracts.

Production Outlook Shifts to Surplus Territory

The supply narrative underwent a meaningful recalibration in recent months. The International Cocoa Organization (ICCO) substantially revised its 2024/25 outlook on December 19, projecting a 49,000 MT surplus—the first positive reading in four years—following upward production revisions to 4.69 MMT on a 7.4% year-over-year increase. This contrasts sharply with the prior estimate of 142,000 MT surplus made in November, and ICCO’s catastrophic 2023/24 deficit assessment of -494,000 MT (the largest in 60+ years).

Meanwhile, Rabobank tempered its 2025/26 surplus forecast, narrowing the projection to 250,000 MT from a prior 328,000 MT estimate—still reflecting production recovery but at a more measured pace than initially anticipated.

West African Weather Scenarios Shape Crop Expectations

Favorable climatic conditions across West Africa have emerged as a headwind for cacao futures valuations. Rain and sunshine patterns in the Ivory Coast are boosting cocoa tree blooming cycles, while Ghana reports consistent precipitation supporting pod development ahead of harmattan season onset. Mondelez reported Q3 pod counts in the region running 7% above five-year averages and “materially elevated” relative to prior-year levels, with farmers expressing optimism regarding main harvest quality now underway.

However, this production strength narrative faces complexity: increased cocoa arrivals at Ivory Coast ports present mixed signals, with shipments reaching 970,945 MT during the October 1–December 21 marketing window, essentially flat versus prior year (-0.1%) despite producer enthusiasm.

Regulatory Delays Ease Deforestation Compliance Burden

The European Parliament’s November 26 approval of a one-year delay to the EU Deforestation Regulation (EUDR) removes near-term supply constraints. The deferral permits continued imports from high-deforestation regions across Africa, Indonesia, and South America into EU markets, supporting broader cocoa supply availability and tempering scarcity premiums in cocoa cacao futures.

Demand Weakness Poses Structural Headwind

Cocoa processing activity has contracted across major consuming regions, raising demand sustainability questions. Asia’s Q3 cocoa grindings dropped 17% year-over-year to 183,413 MT—the weakest third quarter in nine years per the Cocoa Association of Asia. European crushing volumes similarly retreated 4.8% y/y to 337,353 MT, marking the lowest Q3 in a decade. North American processors expanded output 3.2% to 112,784 MT, though newly reporting companies distorted the comparison.

Nigeria’s Production Decline Provides Modest Support

A countervailing supply factor emerges from Nigeria, the world’s fifth-largest cocoa producer. Nigeria’s Cocoa Association projects 2025/26 output will contract 11% to 305,000 MT from the prior year’s 344,000 MT, while September exports remained static year-over-year at 14,511 MT, suggesting production-side tightness in this critical origin.

The cocoa cacao futures market therefore navigates a nuanced backdrop: structural index buying and inventory tightness support prices, yet benign weather conditions, regulatory relief for deforestation compliance, and weak processing demand across hemispheres present countervailing pressures that will likely determine whether cacao futures consolidate or extend recent trading ranges.