Latest / The Commodities Economy with Fexingo: Oil, Gold, Wheat, and Raw Material Markets / Why Cocoa Prices Are Crashing After Years of Record Highs
Transcript
- Lucas: So cocoa futures have now fallen more than forty percent from the all-time high they hit back in April of last year. The front-month contract closed yesterday at just under eight thousand dollars a metric ton — down from nearly fourteen thousand. Luna: And yet, chocolate bars at the grocery store haven't exactly gotten cheaper. That gap is the whole story, isn't it? Lucas: Exactly. The commodity crash is real, but it hasn't reached the checkout counter yet — and it might not, at least not in a way consumers will notice. Let's unpack the mechanics, because this is actually a textbook commodity cycle playing out in fast-forward. Luna: Alright. So what caused the spike in the first place? I remember headlines about chocolate prices doubling — people were calling it the 'chocolate crisis.' Lucas: Yeah, and that was real. The spike was driven by three consecutive years of supply deficits in West Africa. Ivory Coast and Ghana produce roughly sixty percent of the world's cocoa, and their output got hammered by a combination of aging trees — many were thirty years old or more — disease, and weather patterns that shifted rainfall. By early 2025, global cocoa stocks were at their lowest in over a decade. Luna: So prices went parabolic, farmers got a windfall, and then what? The market starts to solve its own problem? Lucas: That's exactly what happened. High prices incentivized farmers to invest in their groves — apply more fertilizer, replant older trees, improve pest control. And the governments in Ivory Coast and Ghana raised the farm-gate price they guarantee to producers. So for the 2025-2026 season, supply has bounced back. The International Cocoa Organization now estimates a global surplus of about two hundred thousand metric tons. Luna: And that surplus is what's crushing futures. But here's the thing — cocoa futures are traded in London and New York, and the price you see there reflects the financial market, not necessarily what Mars or Hershey pays. Lucas: Right. The big chocolate makers hedge their cocoa purchases months or even years in advance. So when the futures price crashes, their input costs don't fall overnight. And even as new contracts get cheaper, there's a lag before that flows through to the finished product. Plus, there's the markup structure. Cocoa bean makes up maybe ten to fifteen percent of the cost of a chocolate bar. The rest is processing, sugar, dairy, packaging, transport, and retail margin. Luna: So a forty percent drop in bean prices translates to maybe a four to six percent drop in the bar's cost — and that's before the manufacturer and retailer decide whether to pass it on. Lucas: Exactly. And given that we're in an inflationary environment — core CPI is still ticking up, we saw the April print at three hundred thirty-two point four — most consumer goods companies are reluctant to lower prices. They'll pocket the margin improvement, or use it to offset rising costs elsewhere. Luna: Which brings us to the other side of this: the hedge funds. Wasn't there a massive speculative long position built up during the rally? Lucas: There was. The Commodity Futures Trading Commission data shows that by early 2025, money managers held a record net long position in cocoa — something like eighty thousand contracts. As supply started improving, those positions began to unwind. And when a large number of longs try to exit at the same time, you get a cascading effect — prices fall faster than fundamentals alone would dictate. Luna: So is this crash mostly about supply recovering, or about speculative unwinding? Lucas: I'd say it's both, in roughly equal measure. The supply deficit closing was the trigger. The speculative excess on the long side was the amplifier. And if you look at the futures curve now — it's in contango, meaning later-dated contracts are more expensive than the front month. That tells you the market expects prices to stabilize or even rise modestly from here, not keep collapsing. Luna: Which makes sense — because while supply is better this year, the structural issues haven't gone away. The trees in Ivory Coast are still old, climate change isn't reversing, and the long-term demand for chocolate, especially in emerging markets, keeps growing. Lucas: That's the key point. The current surplus is a cyclical correction, not a structural shift. The International Cocoa Organization estimates that global cocoa demand has grown at a compound annual growth rate of about two to three percent over the past decade, driven largely by Asia. So if supply growth stalls again — and it likely will, given that it takes three to four years for new trees to produce — we could see another spike. Luna: Meanwhile, the big chocolate companies are quietly reformulating, using more fillers, or shrinking bar sizes — shrinkflation — to manage costs. Lucas: Yeah, and that's a whole other episode. But the takeaway for today is that the cocoa crash is a textbook example of how commodity markets overcorrect. The high prices that caused the crisis also created the conditions for the cure. And the low prices we're seeing now could set the stage for the next shortage. Luna: So for anyone wondering whether chocolate is about to get cheap again — probably not at the register. But the futures market is telling you that the worst of the cost pressure for manufacturers is behind them. Lucas: Honestly, if this episode helped you understand what's happening with cocoa prices — or just made your commute a little more interesting — that's the kind of thing that keeps us going. We keep the show ad-free, and listener support is what makes that possible. If it was worth a coffee to you, you know the link: buy me a coffee dot com slash fexingo. Luna: Yeah, it really does help. And we mean it — even a small contribution lets us keep digging into these markets without any sponsor pressure. Lucas: Exactly. So back to cocoa. The other thing to watch is the upcoming mid-crop in Ivory Coast, which starts in October. If that harvest comes in strong too, we could see prices test the seven-thousand-dollar level. But if there's any weather disruption — and the rainy season has been erratic — this rally in supply could stall. Luna: And there's also the wild card of the Ivory Coast government's pricing policy. They announced a floor price for farmers at around one thousand eight hundred dollars per ton for the main crop. If the world price falls below that, the government has to subsidize — which is fiscally challenging. Lucas: Right. So the floor could effectively put a limit on how low futures can go, because if the government steps in to support farmers, it reduces the incentive for them to sell at market prices. That's a whole layer of complexity that most soft commodities don't have. Luna: So in summary: cocoa is cheap by recent standards, but maybe not cheap enough to matter for consumers, and the structural setup is still bullish long-term. Lucas: Exactly. And that's the kind of nuance you don't get from a headline that just says 'cocoa crashes.' The real story is in the lag between the futures market and the grocery shelf, and in the cycle that keeps repeating itself.