Shrinking Global Cocoa Surplus Boosts Prices

Cocoa futures extended a two-week rally to five-week highs (March ICE NY +1.08%, March London +0.11%) as tightening supply signals—ICCO cut its 2024/25 surplus to 49,000 MT (from 142,000 MT) and lowered production to 4.69 MMT, while Rabobank trimmed 2025/26 surplus forecasts—and ICE-monitored US port stocks fell to an 8.75‑month low of 1,659,791 bags; reduced Ivory Coast arrivals (804,288 MT vs 819,425 MT a year earlier) and Nigeria production risks add further support. Offsetting forces that could cap gains include generally favorable West African weather and recent farmer reports suggesting higher yields, weak demand evidenced by sharp Q3 grindings declines in Asia (-17%) and Europe (-4.8%), policy moves (EU EUDR delay, US tariff removals) that keep supplies flowing, and a prior ICCO estimate of a modest 2024/25 surplus; inclusion of NY cocoa in the Bloomberg Commodity Index (potentially attracting up to ~$2bn of passive flows, per Citi) and low inventories create upside risk in the near term, but mixed supply/demand signals leave the medium-term outlook uncertain.

Analysis

March ICE NY cocoa rose +67 ticks (+1.08%) and March ICE London cocoa was up +5 ticks (+0.11%), extending a two-week rally to five-week highs as supply-side revisions tightened the outlook. The International Cocoa Organization cut its 2024/25 surplus estimate to 49,000 MT from 142,000 MT and lowered production to 4.69 MMT (from 4.84 MMT), while Rabobank trimmed its 2025/26 surplus forecast; ICE-monitored US port inventories fell to an 8.75-month low of 1,659,791 bags, and Ivory Coast arrivals are down 1.8% y/y to 804,288 MT, supporting prices.

Multiple bearish offsets remain: generally favorable West African weather and farmer reports (Mondelez noted pod counts +7% vs five-year average) point to improved yields, and cocoa futures plunged on Nov.19 to 1.75-year lows on bumper crop expectations. Demand indicators are weak—Asia Q3 grindings -17% y/y to 183,413 MT, Europe Q3 grindings -4.8% y/y to 337,353 MT, and Hershey reported disappointing Halloween sales—while policy moves (EU EUDR one-year delay, US tariff removals) keep flows open.

Market-structure factors amplify near-term upside and risk: inclusion of NY cocoa in the Bloomberg Commodity Index could attract up to ~$2bn of passive buying per Citigroup, yet mixed supply/demand data leave the medium-term price trajectory uncertain. Investors should watch ICCO revisions, ICE inventories, Ivory Coast shipments, West African weather, and quarterly grindings as primary triggers for directional conviction.

Key Decisions for Investors

• Consider a modest tactical long in NY cocoa futures or ETFs ahead of BCOM inclusion to capture potential index-driven flows (Citigroup cited up to ~$2bn), but cap position size and use disciplined stops given mixed demand signals
• Monitor ICCO production/surplus revisions, ICE-monitored US port inventories (currently 1,659,791 bags), Ivory Coast arrivals, West African weather, and upcoming grindings data (Asia Q3 -17%, Europe Q3 -4.8%) as explicit add/trim triggers
• Avoid increasing core exposure to chocolate equities until demand indicators stabilize, or hedge existing consumer confectionery positions given weak grindings and Hershey's reported disappointing seasonal sales