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An unparalleled rally in cocoa and coffee futures is leaving traders so cash-strapped that many no longer have enough money to ship the two commodities around the world. Rising prices forced traders to deposit large sums of money with the New York exchange to back their futures positions. With so much cash locked up, it’s become much harder to finance cargoes to move beans from where they are produced to where they are consumed.
To make matters worse, a rising market has prompted some farmers that sold at lower prices to default, leaving traders without the supply they need. Chocolate maker Hershey Co. argues there’s a “significant disconnect” between prices in the physical and the futures market, and that a lack of liquidity is allowing for unprecedented volatility.
118959347“The cash market and the availability of financing, that’s the problem,” said Pam Thornton, a veteran commodity trader who’s best known for her role at former cocoa hedge fund Armajaro Asset Management. Cocoa futures traded in New York almost tripled last year as dry weather and the spread of disease hurt crops in West Africa, which accounts for about 60% of the global supply. While prices have dropped 28% in 2025, they are still more than double the average of the past decade.
The coffee rally followed not long after, with a smaller-than-expected crop in top producer Brazil helping send New York futures surging 20% this year. That’s on top of an almost 70% gain in 2024.Many companies that buy and sell cocoa also trade coffee, making the cash crunch worse.
There are also a number of small participants, which have a lot less access to cash. Olam Group, which trades both coffee and cocoa, saw its working capital rise 68% from a year earlier “due to unprecedented sharp rises in commodity prices, namely cocoa and coffee,” according to an earnings presentation last month. Market ArbitrageEarlier this year, the price of coffee and cocoa in the physical market got low enough that traders could have profited from buying the beans and transporting them to warehouses in the US to deliver to the exchange.
But that simply didn’t happen in a meaningful way. “In the past month, one was able to buy cocoa from various producing countries, particularly Ecuador, and deliver it to the exchange for a profit — if you just had the money for it,” Thornton said.Only a few houses currently have the fire power to take a new position to move coffee from producing to consuming countries even if there’s an arbitrage, said Tomas Araujo, a trading associate at StoneX, a futures brokerage that also has a physical arm.
Coffee traders are also grappling with a shortage of containers, which is delaying shipments from some countries. Roasters also have no incentive to hold stockpiles, as later-dated futures are worth less — meaning they lose money the longer they hold on to inventory“Supply is one thing — I think the market kind of knows how much coffee there’s going to be,” Araujo said. “The problem is: Is the coffee going to be able to leave the port and get to destination on time?”Global coffee supplies are expected to trail demand for a fifth season, according to Volcafe Ltd.
, one of the world’s top coffee traders. Marex expects a small oversupply. The cocoa market is finally expected to return to a fragile surplus after a record shortage last season, according to the International Cocoa Organization.
“In recent seasons, producers have seen poor crop harvests, unusually dry weather patterns, and aging and diseased cocoa trees,” Tricia Brannigan, chief procurement officer for Hershey, said of cocoa supplies. “However, data indicate that the sustained and extreme volatility we are seeing in the cocoa exchanges is not purely a reflection of these supply challenges, but a sign of an unhealthy market.”She argued that a lack of liquidity in the futures market has “turned the cocoa exchange almost exclusively into a financial tool, allowing for unprecedented volatility.
”A spokeswoman for Intercontinental Exchange, owner of the London and New York cocoa contracts, declined to comment.Physical MarketThe premium that cocoa from top grower Ivory Coast sold in Europe commands over futures prices fell in mid-February to the lowest since October. Beans from second-ranking Ghana traded at their lowest premium since August in the same period, according to KnowledgeCharts, a unit of Commodity Risk Analysis.
The premiums have since gained a bit to compensate for a recent decline in futures prices. Colombian coffee sold at the country’s ports were last week trading at a premium of 3 cents over futures, down from 9 cents at the end of last year, according to Volcafe. Beans from Honduras were at the same price as the exchange, down from a premium of 8 cents at the end of 2024.
“Risk is very high on all fronts from the chance of defaults, processing bottlenecks, inverted markets and shipping delays,” said Trishul Mandana, managing director of Volcafe. “As a result, the physical market needs to trade at steep discounts to the futures to cover these risks.”Still, Mandana said there’s simply not enough supply to be delivered to the exchange and that the market isn’t broken.
Thornton added that there’s less hedging on the exchange simply because buyers are cash-strapped, but that ICE is doing their job managing the futures market.Margin RequirementsThe exchange has increased margins on many occasions, seeking to curb volatility by requiring traders to commit to higher amounts of cash to back their positions.“I don’t think the market is broken, but for sure cash is king in this environment,” Mandana said.
“The key in this environment is to manage and price the risk well.”Inventories are costly for traders to store without buyers, and chocolate makers and coffee roasters have been reluctant to buy, hoping for lower prices. Overall, the market simply isn’t able to operate normally.
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