Are falling cocoa prices giving an edge to small choc players?

Could falling cocoa prices advantage smaller brands – summary

• Falling cocoa prices bring temporary cost relief but affect companies unevenly
• Large manufacturers often remain locked into earlier contracts delaying falling price benefits
• Smaller brands buying spot cocoa may lower prices faster temporarily
• Limited capital and storage restrict smaller brands exploiting prolonged market dips
• Hedging flexibility and balanced portfolios help all companies manage cocoa volatility

A year ago, cocoa prices were hitting unprecedented heights, sending shockwaves throughout the confectionery sector. Cocoa price volatility has been the major story for confectionery over the past two years.

Now, things are changing. Due to a combination of increased supply and lower demand, cocoa prices have returned, more or less, to how they were in late 2023 – around $3778 per tonne as of February 2026. One would think that the global chocolate sector was breathing a sigh of relief. But is it really?

Because of the way the cocoa futures market works, present-day prices do not necessarily reflect the reality for large players in the market. Many FMCG giants have already paid for their cocoa for the year, when they were unable to take advantage of the lower prices.

How futures contracts work for cocoa companies

Futures contracts give companies the ability to buy commodities in advance, at an agreed price. This is called hedging, and protects them from price fluctuations.

Take cocoa, for example – companies that had already agreed contracts for their cocoa supply covering the year 2024 had agreed a more “normal” price, meaning that they weren’t exposed to the rapid price increases of that year.

This, however, does not always work in their favour. Now, the price of cocoa has fallen significantly, reaching lows not seen for two years. As many majors already have their supply for 2026 covered, they won’t be benefitting from price declines – at least not yet.

How has the cocoa crisis affected hedging?

Before the cocoa crisis, large manufacturers would usually cover cocoa supply about a year in advance, explains Friedel Huetz-Adams, senior researcher at Suedwind-Institute, a research institute.

However, when prices began to rise at the end of 2023, all previous certainties were thrown out the window.

Firstly, many of the speculators in cocoa futures (such as traders or hedge funds) left the market. Secondly, the volatility led to increased demands for margin calls to cover risk. Thirdly, many majors predicted the fall in prices, so decided to wait until this happened before hedging.

Nevertheless, some have been affected significantly. In its recent full-year results call for 2025, US snacking giant Mondelēz International admitted that it was unable to take advantage of falling prices in the short term, as it was already covered for 2026.

For large companies, “most of their volume is tied to previously agreed positions which don’t expire all at once, so falling spot prices take time to flow through”, explains Jordan Kear-Nash, principal consultant at supply chain consultancy Proxima. A spot price is the market value for immediate purchase.

“A smaller unhedged portion may benefit straight away, but the majority of their cost base will only feel the impact once existing hedges unwind.”

Could this provide an advantage for smaller brands?

Smaller brands, who cannot afford to hedge as far into the future as the giants, have a potential advantage as prices fall.

Unlike the giants, those who are not hedged far into the future on past high prices can buy cocoa at the spot price, which has now become significantly lower.

These smaller companies “may be able to reduce their chocolate prices sooner than the major brands”, explains Huetz-Adams.

Yet such an advantage is inherently short-term. While they may benefit during times of falling prices such as this, they are also far more exposed to rapid price rises, as seen in 2024 and 2025.

So this current advantage, if indeed it is an advantage, is at best a double-edged sword.

Furthermore, smaller companies are not inherently unable to access hedging, clarifies Proxima’s Kear-Nash.

“The difference is that larger businesses often have the cashflow and storage capacity to hold more physical stock, which allows them to blend existing inventory with future positions and smooth their cost base.”

Smaller companies, because they have less access to capital, may buy closer to the spot price, but this doesn’t mean they’re inherently unable to hedge.

Such companies have less manpower, capital and capacity to hold physical stock, limiting their ability to take full advantage of falling spot prices before demand ratchets back up again.

Conversely, larger companies – at least those who are not already fully hedged for the foreseeable future – can buy physical cocoa now and use this to support futures contracts. This blended portfolio helps average out costs. In this case, the advantage is squarely with them.

Finally, says Huetz-Adams, even if the price shifts do provide an edge to smaller companies, this will not be enough in the face of the gargantuan reputation of established, recognised brands.

“Over the last two years, it has been proven that price is not everything for this sector. Many people stick to their preferred brand even when the price increases significantly.”

How companies can protect themselves from volatility

Clearly, protecting oneself from volatility is about more than just avoiding paying high prices – it’s also about being able to take advantage of low ones when they come around.

So how can companies do this? Rather than a fixed buying cycle, suggests Proxima’s Kear-Nash, companies must have a “genuine portfolio strategy”.

What does this mean? They need to build optionality into their contracts, meaning that they do not have the obligation to carry them through.

The most successful companies, says Kear-Nash, combine physical stock positions with selective headroom, meaning that they have greater flexibility and can act when the market turns.

Will history repeat itself?

The current difficulties that larger companies are experiencing are not insurmountable: they are temporary. And they are unlikely to cause a revolution in cocoa procurement.

“Companies will stick to hedging. They know that their competitors are doing the same, and this is the most important benchmark”, says Suedwind-Institute’s Huez-Adams.

Meanwhile, farmers are struggling to produce enough cocoa, due to the cost of inputs such as fertiliser which many cannot afford. They are even struggling to sell their cocoa; many companies are not buying it.

Such uncertainty around production suggests another bump in prices in the future.

Because of this, Huetz-Adams believes that cocoa companies “should step out of this way of doing business, which is ruining their own future. Farmers need a price that covers a living income and encourages them to invest in more resilient production systems.

“If companies do not change the way they do business, the volatility in the cocoa sector will continue.”