Cocoa Prices Tumble, Offering Sweet Relief to Chocolate Makers
A sharp drop in cocoa futures to two-year lows could boost margins for confectioners like Hershey and Mondelez after a year of soaring costs.
Confectionery giants are breathing a sigh of relief as cocoa futures, a critical ingredient for chocolate, have plummeted to their lowest levels in nearly two years. The sharp downturn in the commodity's price offers a potential lifeline for companies like Hershey (HSY) and Mondelez (MDLZ), which have spent the better part of a year grappling with record-high costs that squeezed profitability and pressured consumer prices.
In late November trading, cocoa futures were hovering around $5,050 per tonne, a steep decline from the historic peaks seen earlier in the year. The reversal is driven by an improving supply outlook from West Africa, where favorable weather is aiding crop development, and a significant regulatory delay. The European Union has postponed its anti-deforestation law by one year, alleviating near-term supply concerns for one of the world's largest chocolate-consuming markets, according to market reports.
This development marks a stark reversal from the crisis that has defined the sector for the past 18 months. Poor harvests in key growing regions like Ivory Coast and Ghana had previously sent cocoa prices skyrocketing, forcing manufacturers to make difficult choices between absorbing costs, shrinking product sizes, or passing the expense on to inflation-weary shoppers.
The impact of those high prices was evident in recent corporate earnings. Last month, Hershey warned investors it expected a significant contraction in its adjusted gross profit margin for 2025, citing the unprecedented commodity costs. Similarly, Mondelez, the maker of Cadbury and Oreo, reported a 1,010 basis-point decline in its adjusted gross margin in the third quarter, forcing it to revise its full-year earnings guidance downwards.
With cocoa prices now in retreat, investors are watching to see how quickly the relief will filter through to corporate bottom lines. While many large manufacturers use long-term hedging strategies that can delay the impact of price swings, the sustained drop provides significant tailwinds for future profitability.
Shares of The Hershey Company were trading around $188 on Wednesday, still well below their 52-week high of over $201. Mondelez International has also seen its stock trade in a wide range, recently changing hands near $57. The recent commodity relief could provide a much-needed catalyst for both stocks as they head into the crucial holiday season.
The improved margin outlook is not solely dependent on the EU's regulatory delay. The International Cocoa Organization (ICCO) is now forecasting a global cocoa surplus for the 2024/25 season, the first in four years, with global production projected to rise by nearly 8%. This fundamental shift in supply-demand dynamics suggests that lower prices may be sustainable, offering a more stable cost environment for producers.
Analysts will now be focused on whether this cost relief will be passed on to consumers or used to rebuild battered profit margins. For a sector that has been on the defensive, the great cocoa collapse of late 2025 may finally offer a chance to go on offense, reinvesting in innovation and brand growth.