Dollar Weakness Reshapes Cocoa Market Dynamics Amid Complex Supply-Demand Tensions

The cocoa futures market experienced notable movement this week, driven by a convergence of factors ranging from currency fluctuations to fundamental supply-demand imbalances. March ICE New York cocoa futures gained 85 points (+1.95%), while March ICE London cocoa contracts rose 13 points (+0.42%), reflecting underlying market shifts that extend beyond simple price movements.

The primary catalyst for improved cocoa prices stems from a significant dollar index decline to nearly 4-year lows, which has triggered substantial short covering in cocoa futures. However, this strength was partially offset in London markets, where the British pound surged to a 4.25-year high, putting pressure on cocoa prices expressed in sterling terms. This currency divergence illustrates how forex dynamics reshape commodity valuations across different trading venues.

West African Production Dynamics and Farmer Response

Supply-side pressures originate from West African producers deliberately restricting shipments amid unfavorable pricing conditions. Cumulative shipping data through January 25, 2026 reveals that Ivory Coast farmers moved 1.20 million metric tons (MMT) to ports during the current marketing year—representing a 3.2% year-over-year decline from 1.24 MMT in the previous period. As the world’s largest cocoa producer, the Ivory Coast’s export patterns significantly influence global market supply trajectories.

Despite these supply constraints, favorable agricultural conditions in West Africa present a complex picture. Tropical General Investments Group reported that optimal growing conditions should support a robust February-March harvest across the Ivory Coast and Ghana, with farmers observing notably larger and healthier cocoa pods compared to year-ago levels. Mondelez similarly noted that current pod counts in West Africa stand 7% above the five-year average and materially exceed last year’s production profile.

Demand Destruction at Multiple Levels

The more pressing market challenge emerges from demand weakness across major consuming regions. Last Friday, New York cocoa futures fell to a 2-year low while London contracts reached a 2.25-year low, reflecting abundant global inventories and reduced consumption. This demand deterioration stems partly from consumer resistance to elevated chocolate prices, evident in Barry Callebaut AG’s reported 22% decline in cocoa division sales volume during its quarter ending November 30. The world’s largest bulk chocolate manufacturer attributed this contraction to “negative market demand and prioritization of higher-return segments within cocoa.”

Grinding data across major processing regions confirms weakening demand patterns. European cocoa grindings fell 8.3% year-over-year to 304,470 metric tons in Q4—exceeding expectations of a 2.9% decline and marking the lowest fourth-quarter level in 12 years. Asian cocoa grindings contracted 4.8% year-over-year to 197,022 metric tons, while North American grindings managed only a 0.3% increase to 103,117 metric tons. These figures collectively demonstrate deteriorating industrial demand across the primary consumption centers.

Global Stock Accumulation and Inventory Pressures

The International Cocoa Organization reported last Friday that 2024/25 global cocoa stocks rose 4.2% year-over-year to 1.1 MMT, signaling oversupply conditions that continue weighing on prices. ICE-monitored cocoa inventories held at U.S. ports have rebounded from a 10.5-month low of 1,626,105 bags recorded December 26 to a 2.5-month high of 1,773,618 bags by Tuesday, adding downward pressure to the price structure.

Offsetting Factor: Nigerian Supply Tightness

A countervailing support element emerges from Nigeria, the world’s fifth-largest cocoa producer. November cocoa exports from Nigeria fell 7% year-over-year to 35,203 metric tons. More significantly, Nigeria’s Cocoa Association projects that the 2025/26 cocoa production will decline 11% year-over-year to 305,000 metric tons from a projected 344,000 metric tons in 2024/25. This supply reduction from a major producing nation offers modest support for forward-looking price considerations.

Global Balance Sheet Revision and Market Expectations

The supply-demand equilibrium has shifted considerably from earlier deficit conditions. The ICCO revised its 2023/24 global cocoa deficit to negative 494,000 metric tons on May 30—the largest deficit exceeding 60 years—driven by production that fell 12.9% year-over-year to 4.368 MMT. However, conditions have normalized substantially: ICCO’s December 19 estimate placed 2024/25 at a 49,000 metric ton surplus, marking the first surplus in four years, with production rebounding 7.4% year-over-year to 4.69 MMT.

Looking forward, Rabobank recently cut its 2025/26 global cocoa surplus estimate to 250,000 metric tons from a November forecast of 328,000 metric tons, while ICCO itself had reduced its 2024/25 surplus projection to 49,000 metric tons from a prior 142,000 metric tons, with production revised downward from 4.84 MMT. These successive estimate reductions signal market recognition of tightening supply conditions and evolving demand dynamics.

The cocoa market currently navigates crosscurrents of favorable agricultural conditions, rising inventories, weak industrial demand, and currency volatility. While dollar weakness provides near-term price support through short covering mechanics, the fundamental market structure remains challenged by demand destruction outpacing supply constraints, with future pricing power likely dependent on whether production growth aligns with demand stabilization in upcoming quarters.