London Cocoa Futures Bounce Back From Oversold Territory as Technical Short Covering Emerges

London cocoa futures and their New York counterparts posted modest gains today following a prolonged sell-off that pushed both markets to multi-year lows. March ICE London cocoa advanced 22 points (+0.75%), marking a technical bounce-back, while March ICE NY cocoa rose 21 points (+0.50%). The rally emerged after prices approached extreme oversold conditions, triggering fund-driven short covering and providing temporary relief to the beleaguered market. Despite these gains, cocoa remains under pressure from a fundamental backdrop of ample global supplies and insufficient demand.

Demand Destruction Takes Center Stage in Cocoa Market Downturn

Weakness in consumer demand has become the primary headwind for cocoa prices. Chocolate manufacturers worldwide are struggling with high input costs, as consumers increasingly resist elevated chocolate prices. Barry Callebaut AG, the world’s largest cocoa processor, reported a concerning -22% decline in cocoa division sales volume for the quarter ending November 30, citing “negative market demand and a prioritization of volume toward higher-return segments within cocoa.”

Grinding data from major regions paint a similarly bleak picture. The European Cocoa Association reported that Q4 European cocoa grindings contracted -8.3% year-over-year to 304,470 MT, falling well below expectations of -2.9% decline and marking the weakest Q4 result in 12 years. In Asia, Q4 cocoa grindings fell -4.8% y/y to 197,022 MT, signaling softening demand across the region. North America provided little respite, with Q4 cocoa grindings rising just +0.3% y/y to 103,117 MT, essentially flat. This synchronized weakness across all major consuming regions underscores the severity of the demand destruction facing cocoa markets.

Global Supply Pressures Create Complex Trading Environment for London Cocoa Futures

On the supply side, the situation is equally challenging, though with some nuance across regions. StoneX forecasted a global cocoa surplus of 287,000 MT for the 2025/26 season, followed by a 267,000 MT surplus in 2026/27, indicating that oversupply will persist. The International Cocoa Organization (ICCO) reinforced this bearish outlook by reporting that global cocoa stocks rose 4.2% year-over-year to 1.1 million metric tons, adding to the inventory burden weighing on prices.

West African production, which supplies the majority of the world’s cocoa, presents a mixed picture. Favorable growing conditions in Ivory Coast and Ghana are expected to boost the February-March harvest, with farmers reporting larger and healthier pods compared to the prior-year period. Chocolate maker Mondelez noted that the latest cocoa pod count in West Africa is 7% above the five-year average and materially higher than last year’s crop. However, this potential supply boost is being partially offset by farmer reluctance to sell at depressed prices. Ivory Coast farmers shipped 1.20 MMT of cocoa to ports through January 25, 2026 in the current marketing year, down -3.2% from 1.24 MMT in the comparable prior-year period.

In contrast, Nigeria’s cocoa production is tightening. Nigeria, the world’s fifth-largest cocoa producer, saw November exports fall -7% year-over-year to 35,203 MT. The Nigerian Cocoa Association projects that 2025/26 production will decline -11% y/y to 305,000 MT from a projected 344,000 MT for the 2024/25 crop year, providing some supportive fundamentals amid the broader oversupply environment.

Inventory Pressures Mount While Market Confronts Structural Headwinds

Cocoa inventories held in ICE-monitored U.S. ports have rebounded from their December 26 low of 1,626,105 bags, reaching 1,775,219 bags by Thursday—a 2.5-month high and a bearish factor for near-term price support. This inventory accumulation underscores the challenge facing both london cocoa futures and NY contracts as physical stockpiles continue to build despite price declines.

Looking ahead, the path for cocoa remains constrained. The ICCO revised its 2024/25 global surplus estimate to 49,000 MT in December (down from 142,000 MT previously estimated), and production came in at 4.69 MMT, representing a +7.4% increase year-over-year. This marks the first surplus in four years after the historic -494,000 MT deficit recorded in 2023/24—the largest deficit in over 60 years. Rabobank cut its 2025/26 global cocoa surplus estimate to 250,000 MT from its November forecast of 328,000 MT, indicating that while surpluses are normalizing, they will remain structurally elevated. With demand destruction continuing to offset any supply improvements and inventory pressures persisting, cocoa futures face significant structural headwinds that may limit sustained price recoveries despite technical bounce-backs like today’s gains.