Cocoa's supply response is slower than the price suggests
Three consecutive deficit years have produced a price that should have fixed the problem. It hasn't, and the reason is biological, not financial.
Priya Raghunathan Head of Agricultural Markets
Cocoa is the cleanest example in softs of a market where the price signal and the supply response are separated by four years. A farmer who decides today to replant a tired hectare will see the first meaningful yield around 2030. In the meantime, the price does what it must: it rations demand.
West African production has stabilised rather than recovered. The pod counts in the main crop are better than last season, but better than a disaster is not the same as adequate, and the structural issues — ageing trees, limited planting material, land tenure — have not changed. Our 2026/27 balance still shows a modest deficit, the fourth in a row, though far smaller than the previous three.
The demand destruction has been substantial and is under-discussed. Grindings in Europe are down 9% year-on-year and the confectionery industry has reformulated, resized and, in some categories, reformulated again. A $9,000/t cocoa price does not just reduce margins; it changes what gets made. Some of that demand does not come back even when the price does.
That is why we are more balanced than the bulls. The deficit is real, but the market has already found the demand side of the adjustment, and the price is now well above the level that clears the physical market. Our fair value sits nearer $6,800/t than the current $7,420/t, with a wide confidence band because the supply data is genuinely poor.
Positioning should reflect that uncertainty. We would avoid outright length at these levels and instead look at the structure, where the front remains tight and the back of the curve is pricing a recovery that the biology will not deliver on schedule. Selling the 2027 back against a nearby long captures the delay without taking a view on the next harvest.
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