ICE cocoa futures have given back a significant portion of their July gains, trading around $5,330 per tonne on July 22 after reaching an 8-month high of $6,455 on July 9, according to Trading Economics data. The sharp reversal came as the International Cocoa Organization (ICCO) confirmed a small production surplus for the 2024/25 season, easing some of the supply anxiety that had driven prices higher since late February.
The ICCO's May 2026 Quarterly Bulletin revised the 2024/25 global cocoa balance to a surplus of 48,000 tonnes, down from an earlier estimate of 75,000 tonnes but still the first surplus after several consecutive deficit years. Global production is estimated at 4.723 million tonnes against grindings of 4.628 million tonnes. The stocks-to-grindings ratio stands at approximately 28.5%, indicating adequate but not abundant coverage.
The demand side shows signs of price-induced destruction. Global grindings were down roughly 4% year on year, reflecting weaker demand at elevated price levels. Cocoa processors have been reducing throughput as high bean costs compress margins and chocolate manufacturers reformulate products to use less cocoa. This demand weakness is the structural counterweight to supply concerns.
Exchange-monitored inventories provided additional context to the price pullback. ICE-monitored cocoa inventories in US and European warehouses stood near 3.23 million bags in mid-July, up from extremely low levels earlier in 2025, indicating some restocking has occurred. However, these inventory levels are still below historical averages for this time of year.
The supply picture remains structurally constrained. West Africa, which produces roughly 70% of global cocoa, faces ongoing challenges. Cote d'Ivoire and Ghana, the two largest producers, have been dealing with aging trees, swollen shoot virus, and the impact of irregular rainfall patterns linked to broader climate shifts. The Ivorian cocoa marketing board (Le Conseil Cafe-Cacao) reported mid-crop arrivals running below expectations through June, though the main crop was satisfactory.
Analyst opinions split on the surplus's significance. Bullish analysts argue that a 48,000-tonne surplus on a 4.7 million-tonne market is negligible and could easily flip to deficit in 2025/26 given the structural constraints. They point to the fact that this surplus only exists because demand was destroyed by high prices, not because supply is abundant. Bearish analysts counter that the demand destruction is self-reinforcing: as consumers switch to alternatives and manufacturers optimize for lower cocoa content, the demand base shrinks permanently, creating a new equilibrium at lower prices.
Forward-looking supply indicators are mixed. The 2025/26 West African main crop is developing under largely favorable weather conditions as of mid-2026, with adequate rainfall across Cote d'Ivoire and Ghana. However, the mid-crop (April-September) is expected to be smaller than the main crop, typical for this time of year, and any weather disruption during the key growing months could quickly erode the surplus.
The macro environment for cocoa is supportive in one key respect: the weaker euro and local West African currencies against the dollar make dollar-denominated cocoa exports more attractive for origin countries, potentially incentivizing higher production. However, rising input costs for fertilizer and labor, combined with the long-term challenges of tree disease and age, limit the supply response.
The bull case: the surplus is marginal and temporary, weather risk in West Africa remains elevated, and demand will recover as retail prices eventually adjust lower, bringing grindings back up. The bear case: demand destruction is structural, not cyclical — chocolate manufacturers have permanently reduced cocoa intensity, and the demand base will not return to pre-2024 levels even at lower prices. The base case: prices oscillate in a $4,800-5,800 range for the remainder of 2026, with the ICCO surplus capping rallies and structural supply constraints providing a floor.
The forward curve for ICE cocoa futures reflects this uncertainty. Nearby contracts trade at a premium to deferred months, indicating the market expects the current tightness to ease over time. But the steepness of the contango contains a risk premium that reflects the difficulty of predicting West African production with any confidence.
Cocoa buyers should treat the current pullback from $6,455 as a tactical opportunity but not a signal to fundamentally re-evaluate procurement strategy. The surplus is marginal (48kt on a 4.7 Mt market) and does not represent a structural shift to abundance. For buyers with coverage through Q1 2027, there is no urgency to extend at current levels. For buyers with exposure in Q4 2026 and Q1 2027, the pullback to $5,300-5,500 offers a reasonable entry point for topping up coverage. Consider collars or three-way strategies that cap upside above $6,000 while protecting against a correction below $4,800. The 28.5% stocks-to-grindings ratio provides approximately 3.5 months of coverage at current grind rates, which is adequate but not comfortable. Pay close attention to the Ivorian mid-crop arrivals data through August, the key catalyst for near-term direction. If arrivals run below expectations for two consecutive weeks, the surplus narrative will quickly unwind and prices could retest $6,000+.