Cocoa prices are climbing again due to climate concerns in West Africa, impacting harvests and putting pressure on chocolate makers already dealing with the aftermath of the 2024 price spike. Analysts warn that a potent El Niño could exacerbate supply issues, mirroring conditions that led to previous crises. Chocolate companies are implementing various strategies to cope with rising costs, including price hikes and product reformulation, while the market watches to see if consumer demand will falter.
Cocoa prices are on the rise once more, driven by climate concerns impacting West Africa's harvest and adding to the ongoing pressures faced by chocolate manufacturers following the historic price surge of 2024. This renewed pressure comes just weeks before Halloween, a period typically marked by a significant increase in chocolate consumption.
New York cocoa futures closed at $5,670 per metric ton on Friday, as traders increasingly focused on supply-side risks, reversing some of the previous session's dip. Last week, Goldman Sachs issued a warning that a potentially powerful El Niño could leave the cocoa market vulnerable to another supply squeeze. According to Goldman analyst Lina Thomas, the current growing season mirrors the lead-up to the 2023-24 cocoa crisis, characterized by excessive early rainfall followed by unseasonably dry weather.
Thomas noted that constrained inventories, reduced supplies, and the demand adjustments already made post-spike might leave the physical market with less capacity to absorb another shortfall. "It seemed as if a recovery was coming," Tedd George, founder of Kleos Advisory, a consultant specializing in African markets, told CNBC. "So that could get completely blown out of the water by what's happening with El Niño."
Cocoa prices first surpassed $11,000 per metric ton in April 2024, reaching a record $12,565 in December of that year. Prior to this, cocoa futures had largely traded between $1,000 and $3,500 from 2000 through the third quarter of 2022.
While Thomas believes the cocoa market is more susceptible to a poor harvest this year compared to 2023-24, she does not anticipate the same liquidity squeeze in the futures market that amplified the previous shortage into an unprecedented price spike. In late 2023 and early 2024, hedge funds and other traders entered the cocoa market, acquiring a record $8.7 billion worth of cocoa futures contracts on London and New York markets, according to the Bureau of Labor Statistics. This influx intensified the rally as major chocolate companies scrambled to secure supplies.
"I would expect the market to handle it better this time," George commented, predicting that prices are unlikely to reach the $12,000 mark again. He added, "For the short to medium term, we're going to have a series of shocks which are going to come from time to time."
Cocoa is inherently sensitive to fluctuations in rainfall and temperature. Goldman Sachs has identified "significant upside risk" to prices if El Niño exacerbates growing conditions. However, George posits that the more substantial concern might be the increasing frequency of disruptions rather than a single, extraordinary shortage. He warns that evolving growing conditions could ultimately lead to a "structural decline in production."
Chocolate manufacturers have been implementing strategies to mitigate the impact of historically high cocoa costs for years. These measures include price increases, reducing package sizes, hedging, and reformulating products. Goldman Sachs reports that since the last price shock, manufacturers have taken steps to decrease their reliance on cocoa beans by lowering cocoa content or adjusting ingredient formulations.
Recent financial reports from major chocolate companies highlight the ongoing pressure. Lindt & Sprungli, a prominent Swiss chocolate maker, revised down its 2026 sales-growth forecast, citing "subdued consumer sentiment and increased price sensitivity" as factors weighing on demand due to higher prices. Hershey, in its May report, stated that it is better positioned to manage cocoa price and supply volatility through its diversified supply chain and strengthened hedging and cost control measures. CFO Steven Voskuil emphasized Hershey's reduced reliance on any single region for cocoa and a hedging program designed to buffer price fluctuations and allow more time for pricing decisions.
Barry Callebaut, another Swiss chocolate producer, reported in July that the global chocolate confectionery market contracted by 4.4% in its fiscal third quarter. CEO Hein Schumacher cautioned that "the chocolate market remains challenging." Nestlé, in its late July first-half results, attributed a 20-basis-point reduction in its gross profit margin (to 46.4%) partly to coffee and cocoa prices, a decrease partially offset by pricing strategies and cost savings.
The critical question moving forward is whether consumers will continue to tolerate escalating prices, and at what threshold they will reduce their purchases. "People haven't stopped wanting cocoa," George stated. "It's just whether consumption patterns are going to start to change."
