Cocoa prices are climbing again. Here’s why this time is different

Cocoa prices are rising as climate conditions threaten the West African harvest, renewing pressure on chocolate makers still dealing with the fallout from the historic 2024 price spike . The pressure is coming just a few weeks ahead of Halloween, when chocolate demand spikes. New York cocoa futures closed at $5,670 per metric ton Friday as traders focused on supply risks, reversing some of the previous session's decline. Last week, Goldman Sachs warned that a potentially powerful El Niño could leave the cocoa market vulnerable to another supply squeeze. Goldman analyst Lina Thomas said this year's growing season has already shown similarities to the run-up to the 2023-24 cocoa crisis, with excessive rainfall early in the season followed by unusually dry weather. Constrained inventories, dampened supplies and demand adjustments made after the previous spike could leave the physical market with less room to absorb another shortfall, according to Thomas. Recovery derailed "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 first climbed above $11,000 per metric ton in April 2024, before reaching a record $12,565 that December. Cocoa futures had mostly traded between $1,000 and $3,500 from 2000 through the third quarter of 2022. Thomas at Goldman Sachs said the cocoa market may be more vulnerable to a poor harvest than it was in 2023-24. But she doesn't expect the same liquidity squeeze in the futures market that led the last shortage to become an unprecedented price spike. Hedge funds and other traders joined the cocoa market at the end of 2023, and by early 2024 had purchased a record $8.7 billion worth of cocoa futures contracts on the London and New York markets, according to the Bureau of Labor Statistics . That compounded the rally as major chocolate companies attempted to secure supplies. "I would expect the market to handle it better this time," George said, adding, for example, that he doesn't expect another move to $12,000. Structural decline Cocoa is particularly sensitive to shifts in rainfall and temperature, and Goldman sees "significant upside risk" to prices if El Niño worsens growing conditions. But George said the bigger risk could be that cocoa increasingly faces 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 said, warning that changing growing conditions could eventually lead to a "structural decline in production." Chocolate makers have spent years trying to offset historically high cocoa costs through price increases, smaller packages hedging and reformulated products. Since the last price shock, chocolate manufacturers have taken measures to reduce their reliance on cocoa beans by either reducing cocoa content or reformulating ingredients, Goldman said. Showing pressure Recent financial results from major chocolate makers show the pressure. Lindt & Sprungli, a a global Swiss chocolate maker, cut its 2026 sales-growth forecast after higher prices weighed on demand, blaming "subdued consumer sentiment and increased price sensitivity." In May, Hershey said it is better positioned to manage cocoa price and supply volatility after diversifying its supply chain and strengthening its hedging and cost controls. CFO Steven Voskuil said Hershey is now "much less reliant on one particular region for our cocoa," while its hedging program is designed to smooth price swings and provides more time to make pricing decisions. Swiss chocolate maker Barry Callebaut in July said the global chocolate confectionery market declined 4.4% in its fiscal third quarter , with CEO Hein Schumacher warning that "the chocolate market remains challenging." When Nestlé reported first half results in late July, it said blamed coffee and cocoa prices for reducing its gross profit margin by 20 basis points, to 46.4%, partly offset by pricing and cost savings. One basis point equals 0.01%. The key question now is will consumers keep accepting higher prices, and at what point will they start cutting back on purchases. "People haven't stopped wanting cocoa," George said. "It's just whether consumption patterns are going to start to change."