Cocoa Market Faces Structural Headwinds as Oversupply Collides with Weakening Demand

The global cocoa market is caught between a dual squeeze: production has surged while consumer appetite has evaporated. Recent price action tells the story—cocoa futures consolidated near multi-year lows last Friday as fundamental forces continued to pressure this once-resilient commodity. This shift marks a critical inflection point for traders and chocolate manufacturers alike, driven by structural imbalances that show little sign of resolving.

Global Cocoa Supply Glut Reaches Critical Levels

The root cause of cocoa’s struggles lies in an abundance of supplies colliding with weakening demand dynamics. Forecasters are now projecting significant global surpluses that contrast sharply with the scarcity that defined the market only months ago. StoneX anticipates a 287,000 metric ton surplus for the 2025/26 season, with another 267,000 MT surplus projected for 2026/27—a dramatic reversal from earlier deficit expectations.

Storage facilities underscore the severity of the supply overhang. ICE-monitored cocoa inventories surged to a 1.5-year high of 2.97 million bags on the recent trading session, providing substantial physical backing for lower prices. Meanwhile, the International Cocoa Organization (ICCO) reported that global cocoa stocks climbed 4.2% year-over-year to 1.1 million metric tons as of late January, reflecting both production gains and weak demand absorption.

The magnitude of this reversal becomes clearer when examining recent historical context. The ICCO had previously estimated a record deficit of 494,000 MT for the 2023/24 season—the largest in over 60 years—which had propelled prices to historic highs. However, 2024/25 production recovered sharply, rising 7.4% year-over-year to 4.69 MMT, creating the first surplus in four years. Rabobank and other commodity researchers have been forced to trim their surplus estimates downward multiple times as production continued to exceed expectations.

Demand Collapse Across Major Consuming Regions

Perhaps more concerning than supply growth is the erosion of demand across virtually all cocoa-consuming regions. Chocolate manufacturers have repeatedly signaled consumer price resistance, which has directly translated to lower sales volumes in cocoa division.

The world’s largest bulk chocolate maker reported a -22% decline in sales volume in its cocoa business for the quarter ended November 30, explicitly attributing the weakness to “negative market demand and a prioritization of volume toward higher-return segments.” This wasn’t an isolated incident. Grinding data—a direct proxy for downstream cocoa consumption—showed weakness across all major regions:

• European region: Q4 cocoa grindings fell 8.3% year-over-year to 304,470 MT, marking the lowest quarterly performance in 12 years and significantly undershooting the -2.9% decline that analysts had expected.

• Asian region: Q4 grindings declined 4.8% year-over-year to 197,022 MT, indicating softening demand even in faster-growing emerging economies.

• North American market: Q4 grindings managed only a +0.3% year-over-year increase to 103,117 MT, essentially flat growth in a historically stable region.

These synchronized declines across geographies paint a picture of genuine demand destruction rather than seasonal or regional fluctuations. The high price environment has successfully priced consumers out of the market, reducing industry throughput despite strong brand names.

Mixed Regional Production Signals Offer Limited Support

On the supply side, divergent signals from major producing nations create a complex calculus for price direction. The Ivory Coast, the world’s largest cocoa producer, has seen slowing shipments to ports during the current marketing year. As of early February, farmers had shipped 1.23 million MT, down 4.7% from the prior year’s equivalent period. This modest decline offers some price support, particularly if adverse weather were to disrupt the current harvest.

Yet this support remains muted given favorable growing conditions reported across West Africa. Tropical General Investments Group noted that February-March harvest prospects appear constructive, with farmers reporting larger and healthier pods compared to the year-ago period. Chocolate manufacturer Mondelez cited pod counts that are 7% above the five-year average and materially higher than last year’s production, suggesting the main crop harvest has begun on a positive note.

By contrast, Nigeria—the world’s fifth-largest cocoa producer—is experiencing genuine production headwinds. November cocoa exports declined 7% year-over-year to 35,203 MT, while Nigeria’s Cocoa Association projects a sharp -11% production decline for the 2025/26 season to just 305,000 MT, down from 344,000 MT anticipated for 2024/25. This structural tightening in secondary supply offers some marginal support to the global balance sheet, though insufficient to offset the combination of massive surplus projections and collapsed demand.

Outlook: Structural Imbalances Likely to Persist

The recent price recovery from multi-year lows was triggered by a weak U.S. dollar, which sparked short-covering in cocoa futures markets. However, technical bounces mask the persistent fundamental picture: cocoa is burdened by oversupply at a moment when consumers are actively seeking alternatives to high-priced chocolate products.

For traders monitoring cocoa markets through platforms tracking commodity analysis, the critical question is whether demand destruction has bottomed or will continue if prices don’t fall further. The combination of 250,000-287,000 MT annual surpluses and 4-8% annual grindings declines suggests the market has shifted from scarcity premium to supply management mode. Until either production falls sharply due to weather, or prices decline sufficiently to stimulate demand recovery, cocoa is likely to remain range-bound near current depressed levels—a dramatic reversal from the supply-crisis psychology that dominated the prior two years.