A Third Bad Harvest Is Brewing
First it was torrential rain, then scorching heat. Now swollen-shoot disease is back in full force. Preliminary field surveys compiled this month by two major European grinders suggest that West Africa—the source of more than 60 percent of the world’s cocoa—could lose another ten percent of its 2025/26 crop. If confirmed, it would mark a third consecutive shortfall and erase hopes for a quick rebound from last season’s record deficit.
Manufacturers are already bracing for impact. In a recent investor call, Hershey executives warned of “low-double-digit price increases” on select chocolate lines for 2026. Smaller artisan brands that hedge less aggressively say they may have to shrink bar sizes or push through steeper hikes to stay afloat.
1 Why the Beans Keep Shrinking
El Niño’s lingering fingerprint
Although the climate phenomenon officially ended in May, its after-effects linger. Earlier flowering suffered under dry, dusty Harmattan winds, while mid-season pods swelled rapidly when late rains arrived, boosting fungal pressure. The result is fewer viable beans per pod and higher mold counts at the cooperative level.
Swollen-shoot disease on the march
This virus, spread by tiny mealybugs, infects cocoa trees in Côte d’Ivoire and Ghana. Experts estimate 15 percent of Ivorian acreage is now compromised, up from 11 percent five years ago. Once infected, a tree’s yield can drop 30–50 percent before eventual death. Replanting is slow because farmers often lack certified seedlings and finance.
Aging orchards
Roughly one-third of Ghanaian cocoa trees exceed 30 years of age, well past their agronomic prime. An ambitious replant scheme is underway, but supply inevitably dips before replacement trees hit full productivity—an echo of problems that plagued Brazil’s cocoa belt decades ago.
2 From Farmgate to Factory: The Supply-Chain Squeeze
- Côte d’Ivoire/Ghana farmgates
Smallholders harvest pods and ferment beans in banana-leaf heaps. Drought reduces mucilage, weakening fermentation quality. - Export ports (Abidjan, San-Pedro, Takoradi)
Beans are graded and bagged; quality downgrades have already trimmed top-tier premiums by nearly 40 percent, yet farm-gate prices haven’t fallen because volumes are scarce. - European grind houses (Amsterdam, Antwerp, Valencia)
Processors turn beans into cocoa liquor, butter, and powder. Lower bean inflows force capacity utilization below 80 percent, raising fixed-cost burdens. - Brand factories (Germany, Switzerland, U.S.)
Ingredient buyers confront both higher raw-bean costs and tighter butter-powder spreads, pressuring gross margins.
This path leaves little slack: when pods shrink on the farm, the pain climbs the value chain within weeks.
3 Reading the Futures Curve
As of Monday’s close, ICE London cocoa for December delivery traded near USD 7,200 a tonne—just shy of April’s all-time high. The forward curve remains in steep backwardation: March 2026 at USD 6,850, July 2026 at USD 6,300. Such a curve signals an urgent need for beans today, not tomorrow.
Option markets echo the unease. One-month at-the-money implied volatility hovers near 42 percent, versus a five-year average around 28. The 25-delta call skew is the fattest since the 2015 El Niño scare, revealing traders willing to pay up for upside protection.
4 Corporate Margin Exposure
| Company | 2024 Cocoa Usage | Hedge Horizon* | Comment |
|---|---|---|---|
| Nestlé | ~470 kt | 9–12 mo | Mix shift to wafers cushions blow but margins still sensitive |
| Mondelez | ~330 kt | 6–9 mo | Relies heavily on cocoa butter for Cadbury; levered to butter-powder spread |
| Hershey | ~200 kt | 12–18 mo | Longer hedges slow the hit, yet announced price hikes show pain is coming |
| Lindt & Sprüngli | ~100 kt | 6 mo | Premium product leaves less room to downsize bar weight |
*Average period over which raw-material costs are locked via futures, options, or supplier contracts.
Smaller bean-to-bar makers often have zero formal hedges. Some already slimmed 100-gram bars to 90 grams in 2024; further shrinkflation risks alienating consumers.
5 What History Tells Us About Price Elasticity
During the 2019 export-license dispute in Côte d’Ivoire, London cocoa prices jumped 35 percent in three months. Yet by early 2020, futures had retraced half the gains as extra Ghanaian arrivals and a demand lull tempered panic. That episode reminds traders that:
- Short-term spikes do not guarantee multiyear bull markets unless structural deficits persist.
- Consumer push-back occurs when retail chocolate rises more than 15 percent year-over-year; confectioners then resort to promotions or package downsizing, limiting volume growth.
- Substitution barriers remain high for milk chocolate formulas; switching to cheaper cocoa ratios requires label changes and re-approvals in many jurisdictions.
Given three consecutive weak crops and limited substitution, today’s setup feels less temporary than 2019—yet experience urges caution about betting on runaway prices into 2027 without clear weather data.
6 Trading and Investment Angles
ICE Spreads
Backwardation offers carries for those with storage. Hedgers can sell nearby and buy forward contracts to lock in positive roll yields—though warehouse financing and quality risks apply.
Soft-Commodity ETFs
Niche funds tracking a cocoa-heavy basket provide retail access. Remember that most roll monthly and could bleed if the curve flattens.
Equity Exposure
- ASX-listed Novonix (battery graphite) or Capilano (honey) won’t help; cocoa shortages require direct plays such as U.S.-listed Hershey or Europe’s Barry Callebaut.
- African plantation developers remain unlisted or illiquid; risk-tolerant investors might explore private debt funding for Ivorian replanting initiatives.
Volatility Trades
With implied vol near record highs, selling OTM puts against covered long futures—or deploying ratio call spreads—can subsidize premium while retaining upside if prices keep sprinting.
7 How Chocolate Buyers Can Mitigate Risk
- Extend hedges now. Lock 50–60 percent of 2026 cocoa needs via futures or supplier fixed-price contracts before harvest revisions get baked into forward curves.
- Diversify origins. Source incremental beans from Ecuador or Cameroon, even at quality discounts, to spread geopolitical exposure.
- Innovate recipes. Test higher milk-solids or nut-fill formulas that lower cocoa intensity without harming mouthfeel.
- Transparency marketing. Communicate supply-chain challenges to consumers; past experience shows shoppers accept moderate price hikes when framed around farmer resilience and climate adaptation.
Bottom Line
Three successive poor West African harvests risk turning cocoa from a periodic headache into a structural squeeze. A ten-percent shortfall might not seem catastrophic, yet in a market already running inventory deficits, the arithmetic is unforgiving. Every additional five percent loss lops around 200,000 tonnes from available beans—enough to jolt futures by hundreds of dollars and push retail chocolate pricing power to its limits.
For traders, the playbook is familiar: monitor weather, health-check the backwardation, manage option decay. For manufacturers, the stakes are existential: secure beans or surrender market share. And for consumers? Enjoy your next chocolate bar. The cost may soon taste bittersweet.
Disclosure: This article is for information purposes only and is not investment advice.