Cocoa Prices Jump on Signs of a Smaller Global Cocoa Surplus

ICE cocoa futures jumped (NY March +122 pts/+2.08%; London March +128 pts/+3.02%) as short-covering followed Citigroup’s cut to its 2025/26 global cocoa surplus estimate to 79,000 MT (from 134,000 MT) and ICE-monitored US port stocks fell to a nine-month low of 1,651,199 bags; the planned inclusion of NY cocoa in the Bloomberg Commodity Index could additionally draw as much as $2 billion of passive buying in early January. The bullish supply narrative is reinforced by recent ICCO and Rabobank revisions—ICCO trimming its 2024/25 surplus to 49,000 MT and lowering production to 4.69 MMT, and Rabobank cutting its 2025/26 surplus—while offsets include slightly higher Ivory Coast arrivals year-to-date (895,544 MT, +0.2%), reports of healthy pod counts and harvests in West Africa, an EU deforestation-rule delay that keeps supplies flowing, and weak demand signals (Q3 grindings down sharply in Asia and Europe and disappointing seasonal sales at Hershey). Net effect: nearer-term prices are being driven higher by tighter supply estimates, shrinking on-exchange stocks and potential index flows, but mixed crop reports and weak demand leave the fundamental outlook uncertain and likely to produce continued volatility.

Analysis

March ICE NY cocoa closed up +122 points (+2.08%) and March London cocoa closed up +128 points (+3.02%) as short-covering followed Citigroup's cut to its 2025/26 global surplus estimate to 79,000 MT (from 134,000 MT) and ICE-monitored US port stocks fell to a nine-month low of 1,651,199 bags. The impending inclusion of NY cocoa in the Bloomberg Commodity Index (effective January) is a material technical catalyst; Citigroup projects it could attract as much as $2 billion of passive buying into the first week of January, amplifying near-term upside.

Supply-side revisions from ICCO and Rabobank reinforce tightening narratives: ICCO lowered its 2024/25 surplus to 49,000 MT and trimmed production to 4.69 MMT, while Rabobank cut its 2025/26 surplus; Nigeria is forecast to see an -11% y/y production drop to 305,000 MT. Offsetting factors include modestly higher Ivory Coast arrivals YTD (895,544 MT, +0.2% y/y), reports of healthy pod counts and improving harvest conditions in West Africa, and a one-year EUDR delay that maintains flows to Europe, keeping the fundamental outlook mixed.

Demand signals are weak: Q3 Asia grindings fell -17% y/y to 183,413 MT, Q3 European grindings fell -4.8% y/y to 337,353 MT, and seasonal sales comments from Hershey and steep North American chocolate volume declines point to downside demand risk. The market is therefore susceptible to volatility driven by a short-term technical squeeze and index flows on one hand, and crop arrivals and soft consumption data on the other; monitor weekly port stocks and official surplus/production revisions for directionality.

Key Decisions for Investors

• Consider a tactical long exposure into year-end to capture index-driven flows but size positions small given demand uncertainty and recent volatility,
• Hedge new longs with options or sellable call overlays and set tight risk parameters tied to ICE inventory prints and Ivory Coast weekly arrivals,
• Monitor ICCO/Citigroup/Rabobank updates and Q4 grindings data closely; trim or hedge positions if Ivory Coast arrivals accelerate or demand indicators (grindings, confectionery sales) continue to weaken