Strong 2025/26 harvest and lower costs improve industry fundamentals, while West African production-cut risks rise for 2026/27

Overview

The report reviews July information on global cocoa prices, inventories, production, processing demand, chocolate retail sales, and major producers’ earnings. The core issue is the divergence between two crop seasons: arrivals and inventories are strong in the 2025/26 crop season, with industry coverage recovering significantly; meanwhile, abnormal rainfall, high temperatures, and El Niño risks in West Africa are increasing the probability of production declines in the 2026/27 crop season. Manufacturers have purchased and hedged raw materials in advance, so spot price changes typically take 9 to 12 months to flow through to the income statement. Current lower raw material costs are expected to be released meaningfully in the second half of 2026.

Core views

First, supply is strong in the 2025/26 crop season, with Côte d’Ivoire arrivals, Ghana harvest volumes, and ICE inventories all supporting a large market surplus; physical shortages are not the base case. Second, 2026/27 supply risks are rising, but the industry has more than about 10 months of raw material coverage and healthier inventories, so the price impact of a weak crop may be smaller than in the 2023/24 crop season. Third, demand recovery is uneven: grindings have improved significantly in Asia and North America, while Europe remains weak; retail volumes in Europe and the U.S. are still declining, but price increases are slowing. Fourth, raw material pipeline costs will decline faster in the second half of 2026, helping chocolate manufacturers’ margins, promotional capacity, and volume recovery. Fifth, Barry Callebaut may be among the earliest beneficiaries of an industry volume inflection, Fuji Oil and Orion Corp benefit from restructuring visibility and margin improvement respectively, while Lindt & Spruengli’s risk-reward is more balanced.

Analysis framework

The report cross-validates London and U.S. cocoa spot prices and forward curves, ICE certified inventories, Côte d’Ivoire arrivals and grindings, quarterly grindings in major regions, NielsenIQ retail prices and volumes, producing-region rainfall and temperatures, and producer management commentary. It also uses the MS Cocoa Pipeline Cost Tracker to simulate procurement and hedging lags, and maps industry supply-demand changes to volumes, costs, margins, and valuation risks for major listed companies.

Methodology notes

• Cost pass-through analysisMS Cocoa Pipeline Cost Tracker

  Raw material mix and hedging timing model

  The model assumes the raw material basket consists of 50% cocoa beans, 12.5% cocoa butter, 12.5% cocoa liquor, and 25% sugar, and then estimates the lagged pass-through of market prices to manufacturers’ P&L costs based on assumed hedging progress.

• Supply-demand analysisCocoa supply-demand balance framework

  Production, arrivals, grindings, and inventory reconciliation

  The framework assesses current-season surplus, inventory coverage, and potential physical tightness using production and arrivals in major producing regions, grindings in consuming regions, and futures certified inventories.

• Demand analysisRegional grindings proxy method

  Using cocoa bean grindings to measure industrial demand

  The method compares quarterly and cumulative grindings in Europe, Asia, North America, and Côte d’Ivoire to identify sequential inflection points in global demand and regional differences.

• Consumption analysisPrice-volume elasticity analysis

  Relationship between retail price increases and volume changes

  The analysis uses NielsenIQ six-month rolling price and volume data to estimate the sensitivity of chocolate consumption in Europe and the U.S. to price increases and to assess the scope for volume recovery after price increases fade.

• Production risk analysisCocoa agronomy and weather monitoring

  Impact of rainfall, temperature, humidity, and seasonal phases on yields

  The analysis compares rainfall and temperatures in Côte d’Ivoire and Ghana with five-year ranges, and combines agronomic requirements during flowering, pod development, and harvest periods to assess disease and yield risks.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Cocoa beans

  Core industry raw material and commodity exposure

  Strengths

  Strong arrivals in the 2025/26 crop season, continuous inventory rebuilding, and industry raw material coverage of more than about 10 months indicate healthier near-term physical supply.

  Weaknesses

  Spot prices remain significantly above 2019 levels, with London and U.S. prices higher by 128% and 114%, respectively, and retail demand has not fully recovered.

  Comparison

  The 2025/26 crop season may produce the largest surplus in the past 20 years of records, but West African production expectations for the 2026/27 crop season have weakened materially.

  Risks

  El Niño, excessive rainfall, high temperatures, pod diseases, speculative trading, and errors in regional production forecasts may cause sharp price volatility.

• Barry Callebaut AG (BARN.S)

  Industrial chocolate producer, rated Overweight

  Strengths

  It may be among the earliest beneficiaries of an industry volume inflection and improved unit profitability, with its core global chocolate business returning to positive volume growth for the first time in two years.

  Weaknesses

  Cocoa products account for the highest share of sales, making it the most sensitive to changes in cocoa bean prices.

  Comparison

  Compared with branded chocolate companies, it has higher direct exposure to industry grindings and customer restocking.

  Risks

  Volume recovery falling short of expectations, raw material volatility, customer destocking, and delayed improvement in unit profitability.

• Chocoladefabriken Lindt & Spruengli AG (LISN.S)

  Branded chocolate producer, rated Equal-weight

  Strengths

  After the valuation de-rating of the stock, risk-reward is more balanced, and cost declines can support margins.

  Weaknesses

  The organic sales growth outlook remains unclear, and the company expects volumes to be broadly flat in the second half.

  Comparison

  Compared with Barry Callebaut, it has stronger brand and pricing power, but weaker near-term volume improvement elasticity.

  Risks

  Volumes failing to recover after price increases fade, retail channel friction, and organic sales growth below expectations.

• FUJI OIL (2607.T)

  Food ingredients and industrial chocolate supplier, rated Overweight

  Strengths

  Earnings momentum is expected to improve as visibility on the Blommer restructuring increases; Blommer volumes have returned to positive growth for the first time in about four years.

  Weaknesses

  Earnings improvement still depends on restructuring execution and continued recovery in U.S. industrial chocolate demand.

  Comparison

  The recovery in its U.S. business provides higher operating leverage, but execution risk is higher than for mature branded manufacturers.

  Risks

  Blommer restructuring progress, fluctuations in customer demand, cost pass-through, and operational improvement below expectations.

• Orion Corp (271560.KS)

  Asian branded food and chocolate producer, rated Overweight

  Strengths

  Margin improvement is expected to drive earnings upside, and demand in Asia and emerging markets is generally stronger than in Europe and the U.S.

  Weaknesses

  The China market backdrop is relatively complex, and regional demand recovery is inconsistent.

  Comparison

  Compared with European and U.S. peers, it benefits more from stronger demand trends in Asia and emerging markets.

  Risks

  Weak Chinese demand, rebound in input costs, regional consumption slowdown, and margin improvement below expectations.

Key data

• London cocoa bean spot priceUp 5% in JulyThe forward curve shifted up 6% overall during the month and remained in a mild contango structure.
• U.S. cocoa bean spot priceUp 8% in JulyThe forward curve shifted up 7% overall during the month, with Jul27 4% above spot.
• ICE certified cocoa inventoriesUp 14% month-on-month in JulyInventories increased for the seventh consecutive month, rising to the 41st percentile of the 24-year historical range.
• Côte d’Ivoire cumulative arrivalsUp 22% year-on-year as of JulyThe year-on-year increase was 18% in June, indicating a strong finish to the 2025/26 crop season.
• Ghana 2025/26 crop season harvest750 thousand tonnesWith about one month remaining in the crop season, this is equivalent to approximately 25% year-on-year growth.
• 2026/27 production riskGhana down at least 16%, Côte d’Ivoire down more than 10%The relevant expectations are mainly attributed to excessive rainfall from May to June and rising El Niño risks.
• 2Q26 global tracked grindingsUp 10% year-on-yearThey declined 2% year-on-year in 1Q26, indicating a significant sequential improvement in industrial demand.
• 2Q26 regional grindingsEurope down 5%, Asia up 25%, North America up 8%Europe was below expectations, while Asia and North America were both meaningfully better than market expectations.
• European chocolate retailSix-month rolling volumes down 3% and prices up 5% in JuneThe volume decline narrowed from 4% in May, implying price elasticity of about 0.6x.
• U.S. chocolate retailSix-month rolling volumes down 8% and prices up 14% in JulyThe volume decline was unchanged from June, implying price elasticity of about 0.6x.
• European manufacturer pipeline costsDown 21% in 2Q26, down 30% in 3Q26, down 51% in 4Q26This reflects the lagged cost pass-through caused by raw material procurement and hedging.
• U.S. manufacturer pipeline costsDown 16% in 2Q26, down 29% in 3Q26, down 47% in 4Q26Cost declines are expected to become more visible at an accelerated pace in the second half of 2026.

Impact & implications

The large surplus in the 2025/26 crop season, improved inventory coverage, and rapidly declining pipeline costs together reduce the probability of renewed physical shortages in the industry, and create conditions for margin and volume recovery from the second half of 2026 into 2027. For upstream and industrial chocolate companies, volume recovery and improved unit profitability are most important; for branded manufacturers, falling costs help reduce price increases, increase promotions, and repair demand. However, production declines and weather risks in West Africa next season could push up price volatility and limit the extent of valuation re-rating.

Risks

• Production declines in Côte d’Ivoire and Ghana in the 2026/27 crop season may exceed current expectations.
• El Niño, excessive rainfall, high temperatures, and pod diseases may damage yields and harvest quality.
• The recent rise in cocoa prices may be driven by weather and speculative factors, leaving significant two-way risk in price direction.
• Retail volumes in Europe and the U.S. remain in negative growth, and the pressure of high prices on low-income consumers has not yet faded.
• The pass-through of pipeline cost declines to margins may be offset by promotions, channel negotiations, or weak volumes.
• Retail delistings in Europe, raw material cost negotiations, and customer inventory adjustments may weigh on near-term shipments.
• Research coverage of Hershey and Mondelez was suspended on June 30, 2026, and related company comments do not constitute a current rating basis.

What to watch

• Regional cocoa grindings data for 3Q26, expected to be released in mid-October 2026.
• Pod counts, arrivals, and official production forecasts for the new crop season in Côte d’Ivoire and Ghana.
• West African rainfall, temperatures, El Niño development, and cocoa pod disease conditions.
• Whether ICE certified warehouse inventories can continue their consecutive growth trend.
• London and U.S. spot prices, forward contango structure, and changes in market consensus expectations.
• The pace of improvement in chocolate retail volumes, price increases, and consumption elasticity in Europe and the U.S.
• Manufacturers’ guidance on costs, pricing, volumes, and margins from 4Q26 to 2027.
• Barry Callebaut order and volume inflection, progress on the Blommer restructuring, and Orion Corp margin delivery.