El Niño threat drives cocoa and coffee prices higher

Global cocoa and coffee prices continue to surge amid extreme market volatility and growing concerns over a potentially powerful El Niño event. According to the US Climate Prediction Center, this year’s El Niño could become one of the strongest in more than 75 years, posing significant risks to crop production in key growing regions.

On July 9, cocoa futures in New York and London climbed to their highest intraday levels since November after sharp price swings during the trading session. Arabica coffee futures also jumped nearly 12%, extending an exceptionally volatile week that included the largest one-day gain in 26 years followed by steep declines.

Investors are increasingly concerned that El Niño could intensify hot and dry weather across West Africa, the world’s main cocoa-producing region. This would add further pressure after recent heavy rains damaged cocoa plantations in Côte d’Ivoire. Since the first El Niño forecasts were issued last month, cocoa prices have risen by about 60%.

In the coffee market, traders are also weighing weather risks against tight near-term supplies. Despite expectations for a record crop in Brazil, persistent rainfall has delayed harvesting, while exchange-monitored coffee inventories have declined for twelve consecutive sessions to their lowest level since February 2024.

The heightened volatility has prompted ICE to sharply increase margin requirements for both cocoa and coffee futures. Margin requirements for the benchmark Arabica contract have more than tripled, rising from $5,685 to $18,806, increasing trading costs and potentially reducing market liquidity.

Although the world’s largest cocoa processor, Barry Callebaut, reported stronger sales after cocoa prices eased earlier this year, chocolate demand remains under pressure. According to Nielsen data, global confectionery production fell by 4.4% in the three months through May, while analysts believe the recent improvement reflects only a short-term recovery rather than a lasting rebound in demand.

Tags: prices, cocoa