Cocoa Quotes Rally on Short Covering as Clouds of Oversupply Persist

The cocoa market grabbed some relief this week as technical factors provided a brief reprieve. March ICE NY cocoa advanced 27 points (+0.65%) while March London cocoa rose 29 points (+1.01%), as a softer dollar triggered mild short covering among traders. Yet beneath this near-term bounce, persistent clouds of global oversupply and crumbling demand continue to weigh heavily on cocoa quotes, keeping the medium-term outlook decidedly bearish.

The selling pressure that has gripped cocoa futures has been relentless. London cocoa posted a 2.25-year low just days ago, while NY cocoa hit a 2-year nearest-futures low last week. This sharp decline reflects a fundamental imbalance between what the world is producing and what consumers actually want to buy.

Oversupply and Demand Erosion Cast Clouds Over Cocoa

Three major headwinds are creating significant headwinds on the cocoa market. First, abundant global supplies are creating pressure from the production side. StoneX forecasts a global cocoa surplus of 287,000 MT in the 2025/26 season, with another 267,000 MT surplus expected for 2026/27. The International Cocoa Organization (ICCO) reported that global cocoa stocks rose 4.2% year-over-year to 1.1 MMT, signaling continued accumulation in inventories.

The demand side tells an equally troubling story. Chocolate consumers have rebelled against high prices, creating a significant demand drag. Barry Callebaut AG, the world’s largest bulk chocolate manufacturer, revealed a shocking -22% drop in cocoa division sales volume for the quarter ending November 30, citing weak market demand and a shift toward higher-margin product segments. The damage extends across all major grinding regions. European cocoa grindings fell -8.3% year-over-year in Q4 to 304,470 MT—worse than the expected -2.9% decline and marking the weakest Q4 performance in 12 years. Asian grindings dropped -4.8% year-over-year to 197,022 MT, while North American grindings barely inched up +0.3% year-over-year to 103,117 MT. These figures paint a picture of a global chocolate industry in retrenchment.

West African harvests add another layer of downward pressure. Tropical General Investments Group highlighted that favorable growing conditions in West Africa are positioning February-March cocoa harvests in Ivory Coast and Ghana for strong output, with farmers reporting healthier and larger pods compared to last year. Mondelez noted that the current cocoa pod count in West Africa is 7% above its five-year average and materially higher than last year’s harvest. With the Ivory Coast’s main crop already underway and farmers expressing optimism, additional supply is likely to flow into global markets just as demand remains weak.

Brief Relief from Short Covering vs. Growing Inventory Headwinds

The modest rally this week originated from a classic technical phenomenon: shorts covering their positions as the dollar weakened. This temporary reprieve, however, masks troubling shifts in global inventory management. ICE-monitored cocoa inventories held in US ports hit a 2.5-month high of 1,775,219 bags on Thursday, marking a significant rebound from the 10.5-month low of 1,626,105 bags registered on December 26. From a bearish perspective, this inventory buildup suggests rising pressure to move stockpiled cocoa, which typically weighs on prices.

Nigeria’s Supply Tightening May Provide Limited Quotes Support

One bright spot for cocoa bulls comes from Nigeria, the world’s fifth-largest producer, where supplies are tightening. Nigeria’s November exports fell -7% year-over-year to 35,203 MT, and the country’s Cocoa Association projects 2025/26 production will decline -11% year-over-year to 305,000 MT from an estimated 344,000 MT in 2024/25. This supply contraction offers modest price support, even as it cannot fully offset headwinds from other regions.

The broader supply picture has shifted significantly over recent months. In November, ICCO slashed its 2024/25 global cocoa surplus estimate to just 49,000 MT from a previous forecast of 142,000 MT, while also lowering its global production estimate to 4.69 MMT from 4.84 MMT. Rabobank similarly cut its 2025/26 surplus forecast to 250,000 MT from 328,000 MT. While these revisions represent tighter market conditions ahead, they follow ICCO’s report in December that the 2024/25 season would see only the first surplus in four years after a massive 494,000 MT deficit in 2023/24—the largest in over 60 years.

Cocoa market quotes reflect a commodity caught between competing forces: near-term relief from technical short covering and currency moves, but persistent clouds of oversupply and demand destruction that will likely continue pressuring prices as global economic uncertainty keeps consumers cautious about chocolate purchases.