Cocoa faces a surplus in 2025/26, but production risks rise for 2026/27: Morgan Stanley
Morgan Stanley’s July global cocoa market report highlights a sharp contrast between the 2025/26 and 2026/27 seasons.
Morgan Stanley’s July global cocoa market report highlights a sharp contrast between the 2025/26 and 2026/27 seasons.
The 2025/26 season is expected to end with strong supply growth and the largest supply surplus in 20 years. Côte d’Ivoire arrivals are up 22% year over year, while Ghana’s production is up about 25% year over year. ICE Futures warehouse inventories have risen for seven consecutive months and are currently at the 41st percentile of their historical range.
Risks are increasing for the 2026/27 season. Ghana’s production is expected to fall by at least 16%, while Côte d’Ivoire’s is expected to decline by more than 10%. Morgan Stanley attributes the risk primarily to excessive rainfall in May and June, along with a rising risk from El Niño.
Demand has been stronger than expected. Global grindings rose 10% year over year in 2Q26, led by a 25% increase in Asia and an 8% increase in North America. Pipeline costs for chocolate manufacturers are expected to fall sharply in 4Q26, by 51% in Europe and 47% in the United States.
Industry coverage is sufficient for more than 10 months, and the industry broadly considers a scarcity scenario to be non-base case.
In Morgan Stanley’s view, the 2025/26 cocoa surplus is likely to create near-term downward pressure on prices, while the 2026/27 production risks could rebalance the market. Lower chocolate input costs would benefit downstream manufacturers.
Morgan Stanley identifies Barry Callebaut (BARN) as a beneficiary because it could be among the earliest companies to benefit from an industry sales inflection. Fuji Oil could benefit from improved visibility into the restructuring of Blommer. Chocolate manufacturers including Hershey and Mondelez could benefit from sharply lower costs. Current cocoa bean prices are a negative factor. Prices have partly reflected the 2025/26 surplus, but the risk of a 2026/27 production decline has not yet been fully priced in.
The report identifies three catalysts: 3Q26 grinding data, expected in mid-October and representing the final quarter of 2025/26; actual weather and crop progress in West Africa; and developments related to El Niño.
The 2025/26 season is expected to end with strong supply growth and the largest supply surplus in 20 years. Côte d’Ivoire arrivals are up 22% year over year, while Ghana’s production is up about 25% year over year. ICE Futures warehouse inventories have risen for seven consecutive months and are currently at the 41st percentile of their historical range.
Risks are increasing for the 2026/27 season. Ghana’s production is expected to fall by at least 16%, while Côte d’Ivoire’s is expected to decline by more than 10%. Morgan Stanley attributes the risk primarily to excessive rainfall in May and June, along with a rising risk from El Niño.
Demand has been stronger than expected. Global grindings rose 10% year over year in 2Q26, led by a 25% increase in Asia and an 8% increase in North America. Pipeline costs for chocolate manufacturers are expected to fall sharply in 4Q26, by 51% in Europe and 47% in the United States.
Industry coverage is sufficient for more than 10 months, and the industry broadly considers a scarcity scenario to be non-base case.
In Morgan Stanley’s view, the 2025/26 cocoa surplus is likely to create near-term downward pressure on prices, while the 2026/27 production risks could rebalance the market. Lower chocolate input costs would benefit downstream manufacturers.
Morgan Stanley identifies Barry Callebaut (BARN) as a beneficiary because it could be among the earliest companies to benefit from an industry sales inflection. Fuji Oil could benefit from improved visibility into the restructuring of Blommer. Chocolate manufacturers including Hershey and Mondelez could benefit from sharply lower costs. Current cocoa bean prices are a negative factor. Prices have partly reflected the 2025/26 surplus, but the risk of a 2026/27 production decline has not yet been fully priced in.
The report identifies three catalysts: 3Q26 grinding data, expected in mid-October and representing the final quarter of 2025/26; actual weather and crop progress in West Africa; and developments related to El Niño.