Cocoa Prices Rebounded From Early Losses On MondayCocoa Cash ContractPEPPERSTONE:COCOAKalaGhaziAccording to government data released on Monday, Ivory Coast farmers delivered 411,979 metric tons of cocoa to ports since the new marketing year began on October 1 through November 8, a 9% decrease from 454,624 metric tons in the same period last year. This supply-side signal provided support to the market, helping cocoa prices recover from earlier intraday declines. Bearish Factors: Demand Weakness and Short-Term Supply Expectations Despite the rebound, the cocoa market still faces multiple bearish pressures. On the demand side, Cargill, the world's second-largest cocoa processor, reported "mark-to-market losses on cocoa" for the quarter ending August 31, suggesting the company is struggling to pass on rising cocoa costs to customers. Data from research firm Circana shows that North American chocolate candy sales volume fell more than 21% year-over-year in the 13 weeks ending September 7. Hershey's CEO also stated that Halloween chocolate sales this year were "disappointing," while Halloween accounts for nearly 18% of annual U.S. candy sales, second only to Christmas. Regional grinding data likewise paints a pessimistic picture. The Cocoa Association of Asia reported on October 17 that third-quarter Asian cocoa grinding volume fell 17% year-over-year to 183,413 metric tons, the lowest for the same period in nine years. The European Cocoa Association reported on October 16 that third-quarter European grinding volume fell 4.8% year-over-year to 337,353 metric tons, the lowest for a third quarter in a decade. On the supply side, reports indicate that Ivory Coast farmers say cocoa trees are growing well, with recent dry weather helping harvested beans dry. Ghanaian farmers also report that favorable weather is accelerating cocoa pod development. Mondelez recently noted that West African cocoa pod counts are 7% above the five-year average and "significantly higher" than last year's crop. Bullish Support: Weather Risks and Index Inclusion Looking further ahead, cocoa prices have medium-term support from weather concerns. The U.S. Climate Prediction Center stated that the El Niño pattern that emerged over the equatorial Pacific last month may become one of the strongest events in over 75 years. El Niño typically brings warmer and drier conditions to West Africa, reducing soil moisture, stressing cocoa trees, and suppressing yields. Early surveys of Ivory Coast's 2026/27 cocoa crop show below-average cherelle formation on cocoa trees, signaling a weak outlook for the main cocoa harvest that began this month. Additionally, cloudy weather and insufficient sunlight in Ivory Coast and Ghana have allowed black pod disease to spread, reducing cocoa bean quality. Another support factor is the inclusion of cocoa in the Bloomberg Commodity Index (BCOM). On October 30, the index administrator announced that cocoa would be added to the index for the first time in 20 years starting in January. Assets tracking BCOM totaled approximately $109 billion at the end of 2024, and cocoa's 1.7% weight could attract significant passive fund inflows. According to Peak Trading Research LLC, "funds will need to buy approximately $1.9 billion in cocoa futures over the next 80 days". Meanwhile, ICE cocoa inventories have tightened. ICE-monitored cocoa inventories at U.S. ports fell to a 7.5-month low of 1,793,757 bags last Thursday. Nigeria's Cocoa Association projects that the country's 2025/26 cocoa production will decline 11% year-over-year to 305,000 metric tons, further tightening supply expectations from West Africa. In summary, cocoa prices are caught in a game between short-term demand weakness and bearish short-term supply expectations versus medium-term supply risks from weather and crop quality, along with incremental demand from index inclusion. The pullback from six-week highs last Tuesday reflects concerns about a bumper West African crop, while Monday's rebound demonstrates that the market remains highly sensitive to any tightening signals on the supply side.