Cocoa Prices Rose as Short-Covering Rebound Clashes with Structural Market Headwinds

Cocoa futures quotes showed signs of recovery on Thursday as short-covering activity emerged in response to dollar weakness, though longer-term pressures continue to weigh on the market. March ICE NY cocoa (CCH26) closed up 27 points (+0.65%), while March ICE London cocoa #7 (CAH26) gained 29 points (+1.01%). This modest rebound follows a sharp decline phase, with London posting a 2.25-year low on Wednesday and New York reaching a 2-year low the previous Friday. The brief rally underscores the tension between short-term technical factors and persistent fundamental challenges facing global cocoa markets.

Dollar Weakness Triggers Short-Covering Bounce

The immediate driver for Thursday’s price recovery was a weaker US dollar, which prompted some mild short-covering demand in cocoa futures. When the dollar softens, commodities priced in dollars become relatively cheaper for international buyers, often triggering buyback activity among traders holding short positions. However, this technical bounce offers only temporary relief against mounting structural headwinds that continue to reshape cocoa market dynamics.

Global Supply Glut Keeps Structural Pressure on the Market

The fundamental backdrop remains decidedly bearish for cocoa prices. StoneX forecasted a global cocoa surplus of 287,000 MT for the 2025/26 season, with an additional 267,000 MT surplus expected in 2026/27—pointing to multi-year oversupply. The International Cocoa Organization (ICCO) reported that global cocoa stocks climbed 4.2% year-over-year to 1.1 million metric tons, adding to inventory pressures. These supply dynamics represent a stark reversal from recent history: ICCO’s May 2024 report revealed a -494,000 MT deficit in 2023/24, the largest deficit in over 60 years. Yet by November 2024, ICCO cut its 2024/25 surplus estimate to just 49,000 MT, marking the first surplus in four years, signaling the dramatic speed of the market rebalancing.

Favorable growing conditions in West Africa are also contributing to supply pressures. Tropical General Investments Group noted that optimal weather patterns are expected to boost the February-March cocoa harvest in Ivory Coast and Ghana, as farmers report larger and healthier pods compared to the prior-year period. Chocolate maker Mondelez observed that the latest cocoa pod count in West Africa stands 7% above the five-year average and materially higher than last year’s crop. Ivory Coast’s main crop harvest has begun with farmer optimism about quality, though this abundance works against price support. On the supply-side strategy front, Ivory Coast farmers have reduced shipments to ports in the current marketing year (October 1, 2025–January 25, 2026) to just 1.20 MMT, down 3.2% from 1.24 MMT in the comparable prior-year period, as farmers hold back supplies amid depressed price levels.

Chocolate Demand Collapse Dominates Price Weakness—Grindings Data Confirms the Picture

Demand destruction has emerged as the primary price headwind. Consumers are increasingly resistant to elevated chocolate prices, forcing major participants to adjust. Barry Callebaut AG, the world’s largest bulk chocolate maker, reported a 22% decline in sales volume within its cocoa division for the quarter ending November 30, explicitly citing “negative market demand and prioritization of volume toward higher-return segments within cocoa.” This demand erosion extends across all major global regions based on grinding activity data.

The European Cocoa Association reported that Q4 European cocoa grindings fell 8.3% year-over-year to 304,470 MT—substantially worse than market expectations of a 2.9% decline and marking the lowest Q4 in 12 years. Cocoa Association of Asia data showed Q4 Asian grindings declined 4.8% year-over-year to 197,022 MT. North America presented a marginally better picture, with the National Confectioners Association reporting Q4 North American grindings up just 0.3% year-over-year to 103,117 MT. These grinding reports paint a consistent picture: chocolate demand globally is contracting meaningfully as consumers balk at current pricing levels. With grindings data reflecting actual cocoa bean processing demand, the weakness signals real consumer pullback rather than temporary market volatility.

Production Outlook and Inventory Dynamics: Mixed Signals from Regional Markets

While West African supplies remain abundant, smaller production regions introduce a contrarian factor. Nigeria, the world’s fifth-largest cocoa producer, reported November cocoa exports fell 7% year-over-year to 35,203 MT. Nigeria’s Cocoa Association projects the nation’s 2025/26 cocoa production will slide 11% year-over-year to 305,000 MT, down from a projected 344,000 MT in 2024/25. This Nigerian supply reduction offers modest price support, yet it pales against the volume contribution from larger West African producers.

ICE-monitored cocoa inventories held in US ports have added to price pressures. After hitting a 10.5-month low of 1,626,105 bags on December 26, these stockpiles rebounded to a 2.5-month high of 1,775,219 bags by Thursday—a bearish signal suggesting comfortable physical availability. Rabobank has aligned with the bearish structural view, cutting its 2025/26 global cocoa surplus estimate to 250,000 MT from a prior November forecast of 328,000 MT, yet still projecting substantial oversupply. These inventory and surplus forecasts indicate that even as prices have corrected sharply, the market structure remains tilted toward abundant availability rather than scarcity.

What Cocoa Market Quotes Signal Going Forward

Thursday’s short-covering bounce in cocoa futures quotes captures the ongoing tension between technical trading and fundamental realities. While dollar weakness and short-covering demand provided temporary support, the deeper narrative remains one of structural oversupply meeting collapsing consumer demand. Cocoa prices have carved out a two-year low, reflecting both the magnitude of the rebalancing from the 2023/24 deficit era and the intensity of current demand destruction. For investors monitoring cocoa market quotes, the key takeaway is that short-term rallies may emerge on technical factors, but they operate within a persistent headwind environment created by multi-year supply surpluses and weakening chocolate consumption globally.