March ICE NY cocoa (CCH26) on Tuesday closed up +122 (+2.08%), and March ICE London cocoa #7 (CAH26) closed up +128 (+3.02%).

Cocoa prices rallied sharply on Tuesday amid signs of a smaller global cocoa surplus.  Short covering emerged in cocoa futures on Tuesday, pushing prices higher, after Citigroup cut its 2025/26 global cocoa surplus estimate to 79,000 MT from a September estimate of 134,000 MT.

Shrinking ICE cocoa inventories are also supportive of cocoa prices.  ICE-monitored cocoa inventories held in US ports fell to a 9-month low of 1,651,199 bags on Tuesday.

Cocoa futures also have support, as NY cocoa will be included in the Bloomberg Commodity Index (BCOM) starting in January, which could spark buying by passive commodity funds that track the index.  According to Citigroup, the inclusion of NY cocoa futures in the BCOM may lure as much as $2 billion of buying of NY cocoa futures into the first week of January.

Increased cocoa arrivals at ports in the Ivory Coast are bearish for cocoa prices.  Monday's government data showed that Ivory Coast farmers shipped 895,544 MT of cocoa to ports this new marketing year, from October 1 through December 14, up +0.2% from 894,009 MT in the same period a year ago.  The Ivory Coast is the world's largest cocoa producer.

Cocoa prices have recently rallied sharply, hitting 5-week highs last Thursday, amid a tightening global supply outlook.  On November 28, the International Cocoa Organization (ICCO) cut its global 2024/25 cocoa surplus estimate to 49,000 MT from a previous estimate of 142,000 MT.  It also lowered its global cocoa production estimate for 2024/25 to 4.69 MMT from 4.84 MMT previously.  In addition, Rabobank on Tuesday cut its 2025/26 global cocoa surplus estimate to 250,000 MT from a November forecast of 328,000 MT.

The outlook for ample global cocoa supplies has weighed on prices.  On November 19, cocoa prices tumbled to 1.75-year nearest-future lows on expectations of a bumper cocoa crop in West Africa.  Reports from cocoa farmers in the Ivory Coast stated that cocoa trees are doing well, and recent dry weather helped the harvested beans dry.  Also, cocoa farmers in Ghana said favorable weather is allowing cocoa pods to develop quickly.  

Chocolate maker Mondelez recently said that the latest cocoa pod count in West Africa is 7% above the five-year average and "materially higher" than last year's crop.  The harvest of the Ivory Coast's main crop has just begun, and farmers are optimistic about its quality.

Cocoa prices were undercut after the European Parliament on November 26 approved a 1-year delay to the deforestation law, keeping cocoa supplies ample.  The EU regulation, known as EUDR, aims to tackle deforestation in countries whose imports into the EU include key commodities such as soybeans and cocoa.  The delay of the EUDR will allow EU countries to continue importing agricultural products from regions in Africa, Indonesia, and South America where deforestation is occurring.

Weak global cocoa demand is bearish for prices.  On October 30, the CEO of chocolate-maker Hershey said chocolate sales this Halloween season were "disappointing."  Halloween made up nearly 18% of annual US candy sales in 2024, second only to Christmas.  Meanwhile, the Cocoa Association of Asia on October 17 reported that Q3 Asia cocoa grindings fell by -17% y/y to 183,413, the smallest grindings for a Q3 in 9 years.  The European Cocoa Association on October 16 reported that Q3 European cocoa grindings fell -4.8% y/y to 337,353 MT, the lowest for a third quarter in 10 years.  The National Confectioners Association reported that Q3 North American cocoa grindings rose +3.2% y/y to 112,784 MT, but the addition of new reporting companies skewed the data.  In related news, North American sales volume of chocolate candy was down more than -21% in the 13 weeks ending September 7, compared to the same period last year, according to data from research firm Circana.

A supportive factor for cocoa is lower cocoa production in Nigeria, the world's fifth-largest cocoa producer.  Nigeria's Cocoa Association projects that Nigeria's 2025/26 cocoa production will fall by -11% y/y to 305,000 MT from a projected 344,000 MT for the 2024/25 crop year.  In related news, Nigeria reported that its September cocoa exports were unchanged y/y at 14,511 MT.  

On May 30, the International Cocoa Organization (ICCO) revised its 2023/24 global cocoa deficit to -494,000 MT, the largest deficit in over 60 years.  ICCO said 2023/24 cocoa production fell by -12.9% y/y to 4.368 MMT.  ICCO stated that the 2023/24 global cocoa stocks-to-grindings ratio declined to a 46-year low of 27.0%.  On Friday, the ICCO estimated a 2024/25 global cocoa surplus of 49,000 MT, marking the first surplus in four years.  ICCO also said global cocoa production in 2024/25 rose by +7.4% y/y to 4.69 MMT.