Tariff Shifts Weigh on Cocoa Market Despite Production Concerns

Cocoa futures posted notable losses following policy announcements affecting global trade. December ICE NY cocoa contracts fell 33 points (-0.62%) while December ICE London cocoa dropped 60 points (-1.47%), as traders digested the implications of recent tariff policy changes. The Trump administration’s decision to reduce reciprocal tariffs by 10% on non-US commodities, including cocoa, triggered immediate selling pressure in both major exchanges.

Policy Impact Narrows the Upside

The tariff reduction on imported cocoa from most origins presents a bearish signal for price support, though Brazil—the world’s fifth-largest cocoa producer—faces continued exposure. US imports from Brazil remain subject to a 40% national-security tariff, limiting the full benefit of the broader tariff cut for that origin. This selective application creates uneven trading dynamics, with some cocoa suppliers experiencing improved market access while others face persistent barriers.

West African Supply Surge Offsets Structural Concerns

Production momentum in major cocoa regions is challenging price stability. Ivory Coast, the globe’s leading cocoa producer, reported a 5.7% decline in port shipments during the October 1-November 16 marketing period, with 516,787 MT delivered versus 548,494 MT year-over-year. However, this smaller decline masks improving harvest conditions and robust future expectations.

Field reports from Ivory Coast and Ghana point to favorable growing conditions: cocoa pod development is accelerating in Ghana due to recent weather patterns, while dry conditions in Ivory Coast have supported proper bean curing. Chocolate manufacturer Mondelez flagged that current West African pod counts stand 7% above the five-year average and “materially higher” than the previous season’s tally. The main Ivory Coast harvest is entering its critical phase with farmer sentiment shifting toward optimism on crop quality.

Demand Weakness Compounds Downward Pressure

Global chocolate consumption is struggling to support price floors. Halloween confectionery sales disappointed in 2024, with major producers reporting lackluster performance during a season that typically drives nearly 18% of annual US candy revenues. Third-quarter cocoa grinding data across regions underscores weakening demand:

• Asia recorded the steepest decline: Q3 cocoa grindings fell 17% year-over-year to 183,413 MT, marking the weakest nine-year Q3 result
• Europe saw Q3 grindings contract 4.8% to 337,353 MT, the lowest third-quarter output in a decade
• North America’s Q3 grindings rose 3.2% to 112,784 MT, though new data contributors skewed results
• Retail chocolate volume across North America dropped over 21% in the 13 weeks through September 7

These figures reveal deepening demand headwinds across major consuming regions, limiting cocoa’s ability to maintain elevated valuations.

Inventory Tightness Provides Limited Support

Warehouse dynamics offer modest price support. ICE-monitored cocoa stocks at US ports reached a 7.75-month low of 1,766,644 bags on Friday, suggesting tighter near-term supply accessibility. However, this inventory compression has not proven sufficient to offset broader bearish factors driving recent selloffs.

Production Threats in Secondary Suppliers

Nigeria, the world’s fifth-largest cocoa producer, faces structural production challenges. The Nigerian Cocoa Association projects 2025/26 output will contract 11% year-over-year to 305,000 MT from an estimated 344,000 MT in the current crop year. September cocoa exports held flat at 14,511 MT on an annual basis, indicating no meaningful relief from reduced harvests.

Medium-Term Supply-Demand Rebalancing

The International Cocoa Organization’s latest outlook suggests stabilization in the supply-demand equation. After recording a historic 494,000 MT deficit in 2023/24—the largest in over 60 years—and a stocks-to-grindings ratio hitting a 46-year low of 27.0%, the 2024/25 season is projected to post a 142,000 MT surplus, the first in four years. Global production for 2024/25 is estimated at 4.84 MMT, representing 7.8% year-over-year growth.

This rebalancing reflects improved West African yields offset by subdued global demand, creating a market caught between structural recovery and cyclical weakness—a dynamic the recent tariff policy shifts have further complicated for price direction.