Cocoa Market Faces Historic Tightening: Why Chocolate Prices Are Climbing

The global cocoa market is experiencing a significant supply-demand imbalance that’s reshaping chocolate production costs. Recent price movements tell a compelling story about how quickly commodity markets respond to structural shifts in production and consumption patterns.

Supply Squeeze: From Surplus Hopes to Historic Deficit Recovery

The International Cocoa Organization’s revised outlook paints a dramatic picture of market transformation. What was projected as a substantial 142,000 MT surplus has been slashed to just 49,000 MT for the 2024/25 season—still marking the first surplus in four years, but hardly the cushion the market expected. Meanwhile, global cocoa production rebounded to 4.69 MMT, up 7.4% year-over-year from the previous season’s pandemic-level 4.368 MMT.

However, this apparent recovery masks deeper structural problems. The 2023/24 season saw a -494,000 MT deficit—the largest shortfall in over 60 years—which depleted global stocks to a 46-year low. The stocks-to-grindings ratio collapsed to just 27.0%, leaving the market incredibly vulnerable to any supply disruption.

Rabobank’s forecast adds another layer of concern. The bank projects only a 250,000 MT surplus for 2025/26, down from its previous 328,000 MT estimate. This progressive tightening reflects a market that’s barely recovering from severe depletion, not one that’s comfortably supplied.

Port Inventories and Regional Production Tell the Real Story

Physical cocoa supply metrics are flashing warning signals. ICE-monitored cocoa inventories at US ports fell to an 8.75-month low of 1,672,131 bags, suggesting chocolate manufacturers are drawing down stocks rather than building them—a sign of confidence in continued tight supply.

Port arrivals in the Ivory Coast, which supplies nearly 40% of global cocoa, dropped 1.8% to 804,288 MT during the October-December period of the current marketing year. The Ivory Coast maintains its position as the world’s largest cocoa producer, making any shortfall there globally significant.

Nigeria’s trajectory is particularly concerning. Projections show Nigerian cocoa production declining 11% year-over-year to 305,000 MT, a meaningful reduction from the world’s fifth-largest producer. September exports held steady at 14,511 MT, offering little relief.

Mixed Weather Signals Create Uncertainty for Chocolate Supply Chains

Weather patterns in West Africa present a paradox. Current conditions favor cocoa tree development—farmers report adequate rainfall combined with sunshine promoting blooming in the Ivory Coast, while Ghana is experiencing regular rains supporting pod development ahead of the harmattan season. Yet this same favorable outlook previously dampened prices in mid-November when reports suggested cocoa pod counts were running 7% above the five-year average.

Chocolate manufacturers face planning challenges in this environment. Mondelez’s observation that pod counts are “materially higher” than last year doesn’t guarantee harvest success, as weather remains unpredictable during critical development phases.

Chocolate Demand Weakness: A Counterweight to Supply Tightness

Despite supply constraints pushing prices higher, chocolate consumption patterns are struggling. Hershey’s CEO reported “disappointing” Halloween chocolate sales at a season that typically represents 18% of annual US candy sales. This underperformance raised questions about chocolate price elasticity in consumer markets.

Cocoa grindings—the key metric of chocolate processing activity—paint a sobering picture across major regions. Asia reported Q3 cocoa grindings of 183,413 MT, down 17% year-over-year and marking the lowest quarterly output in 9 years. European grindings fell 4.8% to 337,353 MT, the worst third quarter in a decade. Even North American grindings rose just 3.2% to 112,784 MT, though this figure was skewed by new data reporting additions.

North American chocolate candy sales volume contracted more than 21% in the 13-week period ending September 7, suggesting consumer sensitivity to elevated chocolate prices.

Policy and Market Structure: New Tailwinds for Cocoa Futures

An unexpected catalyst emerged when cocoa entered mainstream commodity indices. New York cocoa’s inclusion in the Bloomberg Commodity Index beginning in January positions the market for significant structural buying. Citigroup estimates this inclusion could channel as much as $2 billion into NY cocoa futures during the first week of January alone, representing passive index fund accumulation.

Tariff adjustments also shifted the near-term outlook. The Trump administration’s decision to exclude cocoa from reciprocal tariffs and eliminate 40% tariffs on Brazilian food imports removed a potential headwind for cocoa-importing nations.

The European Union’s one-year delay on its deforestation regulation (EUDR) provided temporary relief, allowing continued agricultural imports from regions experiencing deforestation. This policy adjustment temporarily eased supply concerns, though structural deforestation pressures remain.

The Chocolate Analysis: Structural Tightness Overcoming Demand Weakness

Current market dynamics reflect a fundamental supply-demand recalibration. The transition from a 494,000 MT deficit to a 49,000 MT surplus represents recovery, not normalization. Combined with historically low inventory levels and declining production in key regions like Nigeria, the cocoa market has limited margin for error.

Chocolate manufacturers face a paradox: supply remains tight enough to sustain elevated cocoa prices, yet demand weakness limits price appreciation potential. The structural story—decades-low inventory ratios and slow supply recovery—appears to be winning the pricing battle against cyclical demand softness, at least for now.

March ICE NY cocoa and London cocoa contracts climbing to one-month highs reflects this underlying tension. The market is pricing in persistent tightness over structural recovery in cocoa and chocolate supply chains, suggesting elevated price levels may persist until production rebuilds more substantially from historically depleted levels.