Cocoa Prices Push Higher as the Global Cocoa Surplus Shrinks

Cocoa futures ticked higher Monday (March ICE NY +0.09%, London +1.55%), extending a recent rally after the ICCO cut its 2024/25 surplus estimate to 49,000 MT (from 142,000 MT) and trimmed its production forecast to 4.69 MMT, while ICE-monitored U.S. port stocks fell to 1,675,801 bags (an 8.75-month low). The market is being pulled in opposing directions — supply-side support from lower ICCO balances, reduced Ivory Coast shipments year-to-date (804,288 MT, down 1.8%) and weaker output prospects in Nigeria (-11% forecast) versus bearish forces from favorable West African weather and a Mondelez pod count 7% above the five-year average, an EU delay to anti-deforestation rules, tariff removals and soft demand evidenced by steep declines in Asian (-17% q/q) and European (-4.8% y/y) grindings and disappointing seasonal chocolate sales — leaving prices finely balanced and the near-term outlook uncertain.

Analysis

March ICE NY cocoa rose +5 ticks (+0.09%) and London cocoa gained +63 ticks (+1.55%), with NY at a 3.5-week high and London at a 3-week high as the market reacted to a tighter supply narrative. The International Cocoa Organization (ICCO) on Nov. 28 cut its 2024/25 surplus estimate to 49,000 MT from 142,000 MT and trimmed production to 4.69 MMT (from 4.84 MMT), while ICE-monitored U.S. port stocks fell to 1,675,801 bags (an 8.75‑month low), and Ivory Coast shipments for Oct 1–Dec 7 were 804,288 MT, down 1.8% y/y from 819,425 MT.

Countervailing bearish forces are material and well-documented: generally favorable West African weather and a Mondelez pod count 7% above the five‑year average point to stronger yields, the EU’s one‑year delay to EUDR and recent tariff removals ease import frictions, and demand indicators show weakness with Q3 Asia grindings down 17% y/y to 183,413 MT and Q3 European grindings down 4.8% y/y to 337,353 MT alongside disappointing seasonal sales cited by Hershey.

The net picture is finely balanced and conditional: ICCO’s revision implies only a small surplus and production up 7.4% y/y, but inventory draws and country-level supply risks (Nigeria’s projected -11% to 305,000 MT) provide upside vulnerability. Near‑term price direction will hinge on Ivory Coast arrivals, quarterly grinding trends, and whether good weather translates into sustained higher shipments; expect elevated volatility and rapid repricing as these data points arrive.

Key Decisions for Investors

• Reduce unhedged directional exposure or size positions conservatively given opposing supply and demand signals and the potential for sharp short‑term volatility
• Use option structures (collars or long‑put protection) or spread trades between ICE London and NY contracts to hedge tail risk while retaining upside to inventory‑driven rallies
• Monitor three high‑impact indicators closely—Ivory Coast port arrivals, ICCO production/stock updates, and quarterly grindings data—and reallocate within 24–72 hours of materially different prints
• Favor tactical, data‑driven entries: consider accumulating on inventory/arrival surprises that tighten balances, but trim on confirmatory demand weakness or sustained above‑average pod counts