Cocoa Prices Decline Amid Improved West African Crop Prospects and Weakening Demand

Cocoa Futures Retreat as Ivory Coast Crop Outlook Improves

December ICE NY cocoa (CCZ25) closed down -17 points, or -0.25%, on Friday, settling near a 10.75-month low. Simultaneously, December ICE London cocoa #7 (CAZ25) experienced a more pronounced decline, falling -49 points, or -1.01%, to a 2.5-month low. This downward movement in cocoa futures signals a shift in market sentiment, predominantly influenced by a more favorable supply outlook from West Africa and persistent concerns regarding global demand.

The Event in Detail: Bolstered Supply and Dampened Demand

The primary driver behind the recent cocoa price declines is the improved agricultural conditions in the Ivory Coast, the world's largest cocoa producer. Beneficial rains have significantly bolstered the outlook for the region's cocoa crop. Recent reports from Mondelez indicate that the latest cocoa pod count in West Africa stands 7% above the five-year average and is "materially higher" than last year's crop. Farmers anticipate the harvest of the main crop, expected to commence next month, with optimism regarding its quality.

Compounding the supply-side pressure is a discernible weakening in global cocoa demand. High cocoa prices over the past six weeks have led to fears of demand destruction. Major chocolate manufacturers have begun to reflect this trend in their financial reporting. Lindt & Sprüngli AG lowered its margin guidance for the year in July, citing a larger-than-expected decline in first-half chocolate sales. Similarly, Barry Callebaut AG, the world's largest chocolate producer, reduced its sales volume guidance for the second time in three months in July, attributing the revision to persistently high cocoa prices. The company reported a -9.5% drop in sales volume for the March-May period, marking its most significant quarterly decline in a decade.

Analysis of Market Reaction: Price Sensitivity and Demand Elasticity

The market's reaction underscores the sensitivity of cocoa prices to supply-side improvements and the elasticity of demand in the face of elevated costs. The recent price retreat in cocoa futures reflects an expectation of increased supply offsetting previous deficits. This adjustment comes after a period where cocoa futures soared by 136% between July 2022 and February 2024, peaking at an all-time high of $12,931 per metric ton in early 2025. This dramatic surge was largely due to a "perfect storm" of supply disruptions, including adverse weather conditions in West Africa.

The impact of high prices on consumer behavior and manufacturing is now clearly evident. Global cocoa grindings, a key indicator of demand, fell across all major regions in Q2. The European Cocoa Association reported a 7.2% year-over-year decline in Europe, while the Cocoa Association of Asia noted a sharper 16.3% decrease. North American grindings, reported by the National Confectioners Association, also fell by 2.8% year-over-year. These figures suggest that manufacturers are reducing their processing volumes in response to both high raw material costs and weakening end-consumer demand for chocolate products.

Broader Context and Implications: Shifting Supply-Demand Dynamics

The International Cocoa Organization (ICCO) has provided crucial context, revising its 2023/24 global cocoa deficit to a substantial -494,000 metric tons, the largest in over 60 years. This deficit reflects a 13.1% year-over-year fall in 2023/24 cocoa production and a 46-year low in the global cocoa stocks-to-grindings ratio of 27.0%. However, looking ahead to 2024/25, the ICCO has forecasted a significant shift, projecting a global cocoa surplus of 142,000 metric tons, marking the first surplus in four years. This forecast anticipates a 7.8% year-over-year rise in global cocoa production to 4.84 million metric tons.

While the Ivory Coast shows improved prospects, other major producers present a mixed picture. Nigeria's Cocoa Association projects an 11% year-over-year fall in the nation's 2025/26 cocoa production to 305,000 metric tons. Conversely, the Ghana Cocoa Board projects an 8.3% year-over-year increase in Ghana's 2025/26 cocoa crop to 650,000 metric tons. The collective impact of these regional forecasts, alongside the global demand contraction, shapes the current bearish sentiment in cocoa markets.

Looking Ahead: The Path to Equilibrium

The immediate outlook suggests continued pressure on cocoa prices as the market absorbs improved supply prospects from West Africa and contends with reduced demand. The upcoming main crop harvest in the Ivory Coast will be a critical factor to watch, as its actual yield will either confirm or challenge the current optimistic forecasts. For chocolate manufacturers, a sustained decline in cocoa prices would eventually translate into lower input costs, potentially easing margin pressure and allowing for a recovery in sales volumes. However, the current "demand destruction," where consumers are resisting higher chocolate prices, indicates that a return to robust demand may lag behind price normalization. The market will closely monitor global grinding data and further revisions from the ICCO for signs of a new equilibrium in the cocoa supply-demand balance.