The cocoa market is coming under strain as traders grapple with a massive shortage of beans and the soaring cost of securing long-term supply contracts in the market.
Prices in the most active futures contracts in New York and London for delivery later this month plunged more than 25 per cent in the last two days, before rebounding sharply, as the world’s growers and buyers of cocoa struggle to manage a supply shortfall.
This has left the price more than $3,000 per tonne higher than a contract to deliver in a year’s time, as traders frantically search for a reliable source of beans.
The wild swings and sharply diverging prices are a sign of market volatility and stress following successive poor harvests in Ivory Coast and Ghana, which supply around two-thirds of the world’s cocoa.
Fears over long-term supply have triggered a rush among refiners and customers to secure shipments as soon as possible. Intercontinental Exchange, the main marketplace, has raised margin costs on contracts — which makes it more expensive for traders to keep their positions on — to try to tame wild moves.
“[The exchange] can try and cool the ardour of the market . . . but no one has ever been through this before in cocoa and the volatility is just eyewatering,” said Nicko Debenham, former head of sustainability at Barry Callebaut, the world’s largest chocolate maker.
The intraday price moves are volatile enough to be “bankrupting for a lot of people”, he said.
The cost of cocoa has rocketed over the past year as poor weather and disease in the world’s main growing region in West Africa have compounded structural problems, including under-investment and ageing trees, slashing yields.
New York cocoa hit an all-time high above $12,000 per tonne in April, more than four times higher than a year earlier. This week, prices dipped below $9,000 per tonne on the news of the rains arriving in the region.
But traders say the rollercoaster moves are putting most strain on longer-term futures contracts, with traders increasingly fearing that both Ghana and Ivory Coast will not be able to deliver the beans they have promised.
The two countries, which set prices for farmers and sell forward contracts to traders to deliver the beans, have together failed to meet orders for hundreds of thousands of tons of beans. This has made traders reluctant to enter in to new forward contracts with them.
In a sign of the pressure on the market, a contract to deliver cocoa beans in May 2025 is trading at $6,925 per tonne, even though traders do not believe the cocoa industry’s supply issues will be easily resolved.
“Recently there has been a big issue with the oversold situation within both Ivory Coast and Ghana, where they sold more main crop than they produced,” said Jonathan Parkman, co-head of agriculture at commodity broker Marex. He estimated the combined supply shortfall from both countries could be the equivalent to around $600mn.
While futures contracts lock in prices, “they are effectively asking their counterparties [trading houses] to foot at least part of the bill for that,” he noted.
Only once these issues are resolved in a way that allows buyers to trade more confidently with Ghana and Ivory Coast can the forward liquidity come back, said Parkman, adding that this would “probably help get the market under control”.
During last year’s rally, open interest in cocoa futures — the number of outstanding futures contracts and a key measure of the depth of the market — rose from less than 320,000 lots to more than 500,000 lots. Since the end of January this year, however, open interest has plunged to below 290,000, the lowest level in two years.
In a bid to encourage farmers to invest in their plantations and boost yields, both Ghana and Ivory Coast’s regulators have increased the set prices paid to farmers. Ivory Coast raised prices first in September for the main crop and then, in an unprecedented move, at the start of this month raised them again for the midcrop — a second, smaller harvest — by 50 per cent to $2.48 a kilogramme. Three days later Ghana implemented a similar increase, bringing prices to $2,481 a tonne.
The price increase has irked international trading houses. With delivery of hundreds of thousands of tons of beans potentially being deferred until the next harvest, traders fear they may be asked to pay much higher prices than they had previously agreed, say industry insiders.
“They’re [Ghana and Ivory Coast] damned if they do and they’re damned if they don’t,” said Debenham. “If they say ‘OK, we’re going to pay the farmers a significantly higher price’, which could be the only political solution they have, where do they get the money to pay that price?”
Ivory Coast is hoping to compensate buyers using a reserve fund, which is designed to mitigate price risks, said Martijn Bron, who was global head of cocoa and chocolate trading for agricultural commodities giant Cargill until 2022.
But it is unclear how much, if anything, is in the reserve fund, he said, adding that it is doubtful all the traders involved can be fully compensated.
Farmers are also unsatisfied by the price rise. It is still too far below “what we see being traded on exchanges in New York and London”, said Issifu Issaka, who farms 11 acres of land in Bibiani Anhwiaso Bekwai in Western North Ghana.
While few farmers can afford to hoard their cocoa in the hope of higher prices to come, the divergence between global markets and farmgate prices in Ghana and Ivory Coast is driving smuggling into neighbouring countries with free markets, worsening the shortage of cocoa beans.
“About 100,000 tonnes could go into Togo [from Ghana] due to the highly liberalised nature of their market,” said one Accra-based cocoa industry expert.
Additional reporting by Aanu Adeoye in Lagos
