Cocoa prices are on the rise again due to climate-related threats to the West African harvest, impacting chocolate makers already grappling with previous price surges. This renewed pressure comes just before the high-demand Halloween season.
Analysts warn of potential supply squeezes driven by El Niño and structural issues in cocoa production, leading to concerns about long-term supply stability and the impact on consumer prices.
Cocoa prices are experiencing another surge, driven by climate challenges impacting the critical West African harvest. This renewed pressure comes just weeks before Halloween, a period that typically sees a significant spike in chocolate consumption. New York cocoa futures closed Friday at $5,670 per metric ton, as traders focused on supply-side risks, partially reversing a prior decline.
Last week, Goldman Sachs issued a warning, highlighting the potential for a powerful El Niño to create another supply squeeze in the cocoa market. Analyst Lina Thomas noted that this year's growing season bears a resemblance to the conditions that preceded the 2023-24 cocoa crisis, with excessive early rainfall followed by unseasonably dry weather. Thomas cautioned that constrained inventories, diminished supplies, and adjustments made by the industry after the previous price spike could leave the physical market less able to absorb further shortfalls.
Ted George, founder of Kleos Advisory, a consultancy specializing in African markets, expressed concern that any perceived recovery might be undermined by the El Niño phenomenon. "It seemed as if a recovery was coming," George told CNBC. "So that could get completely blown out of the water by what's happening with El Niño."
Cocoa prices dramatically escalated in 2024, surpassing $11,000 per metric ton in April and reaching a record high of $12,565 in December. This stands in stark contrast to the period between 2000 and the third quarter of 2022, when cocoa futures largely traded between $1,000 and $3,500.
While the market may be more vulnerable to a poor harvest this year than in 2023-24, Thomas from Goldman Sachs does not anticipate the same liquidity squeeze in the futures market that exacerbated the last shortage. In late 2023 and early 2024, hedge funds and other traders invested heavily in cocoa futures, purchasing a record $8.7 billion in contracts on the London and New York markets, according to the Bureau of Labor Statistics. This influx of speculative capital amplified the rally as major chocolate companies scrambled to secure supplies.
George believes the market might handle the current situation better, predicting that prices are unlikely to repeat the surge to $12,000. However, he points to a larger, structural risk: cocoa increasingly facing repeated disruptions rather than a single, extraordinary shortage. "For the short to medium term, we're going to have a series of shocks which are going to come from time to time," he warned, suggesting that evolving growing conditions could lead to a "structural decline in production."
Chocolate makers have been contending with high cocoa costs for years, employing strategies such as price increases, reduced package sizes, hedging, and product reformulations. Following the recent price shock, many manufacturers have focused on lessening their dependence on cocoa beans by decreasing cocoa content or altering their ingredient recipes, according to Goldman Sachs.
Recent financial reports from major chocolate companies underscore the pressure. Lindt & Sprü;ngli, the Swiss chocolatier, lowered its 2026 sales-growth forecast, citing "subdued consumer sentiment and increased price sensitivity" due to higher prices. Hershey, in May, stated it was better equipped to handle cocoa price and supply volatility through supply chain diversification and enhanced hedging and cost controls, with CFO Steven Voskuil noting a reduced reliance on any single region for cocoa.
Barry Callebaut, another Swiss chocolate maker, reported a 4.4% decline in the global chocolate confectionery market during its fiscal third quarter, with CEO Hein Schumacher describing the market as "challenging." Nestlé, in its first-half results, attributed a 20 basis point reduction in its gross profit margin to elevated coffee and cocoa prices.
The critical question now is whether consumers will continue to absorb these higher prices or begin to cut back on purchases. "People haven't stopped wanting cocoa," George stated. "It's just whether consumption patterns are going to start to change."
