December ICE NY cocoa futures experienced a significant drop of -3.15%, while December ICE London cocoa #7 futures declined by -2.10%, reaching 1.5-month lows. This downturn in cocoa prices is primarily attributed to expectations of growing supplies amid softening demand.

The cocoa market has been under strain over the past month due to concerns that elevated prices and tariffs could potentially dampen chocolate consumption. Major industry players have already felt the impact, with Lindt & Sprüngli AG adjusting its margin guidance downward in July following a larger-than-anticipated decline in first-half chocolate sales. Similarly, Barry Callebaut AG revised its sales volume projections twice within a three-month period, citing persistently high cocoa prices as a key factor. The company reported a substantial -9.5% decrease in sales volume for the March-May period, marking the most significant quarterly decline in ten years.

Adding to the bearish sentiment is the optimistic outlook for this year's cocoa harvest in West Africa. A leading confectionery manufacturer recently reported that the latest cocoa pod count in the region is 7% above the five-year average and notably higher compared to the previous year's crop.

Despite the overall downward pressure, some supportive factors remain for cocoa prices. Inventory levels at ICE-monitored U.S. ports have fallen to a 3.75-month low, indicating tighter supplies in certain areas. Additionally, concerns persist about the impact of cold and dry weather on cocoa-producing regions in West Africa, potentially affecting pod retention and disease proliferation as the main crop harvest approaches in October.

The pace of cocoa exports from Ivory Coast, a key producing nation, has shown a mixed picture. While shipments from October 1 to September 7 increased by 5.8% compared to the previous year, this growth rate represents a significant deceleration from the 35% increase observed earlier in the season.

Quality issues with Ivory Coast's mid-crop cocoa have also been noted, partly attributed to late-arriving rains that limited crop development. Estimates suggest this year's mid-crop yield could be around 400,000 MT, representing a 9% decrease from the previous year.

In Nigeria, the world's fifth-largest cocoa producer, projections indicate an 11% year-on-year decline in production for the 2025/26 crop year. This reduction in output from a significant producer could potentially support prices in the longer term.

However, weakening global demand continues to exert downward pressure on the market. Recent reports from major cocoa-consuming regions show notable declines in cocoa grindings, with Europe experiencing a 7.2% year-on-year decrease in Q2, Asia seeing a substantial 16.3% reduction, and North America reporting a more modest 2.8% decline.

Looking ahead, the International Cocoa Organization (ICCO) has forecasted a global cocoa surplus of 142,000 MT for the 2024/25 season, which would mark the first surplus in four years. The organization also projects a 7.8% year-on-year increase in global cocoa production to 4.84 MMT for the same period.

As the market navigates these conflicting factors, traders and industry participants will be closely monitoring weather patterns, demand trends, and production figures in the coming months to gauge the direction of cocoa prices.