Cocoa crashed from its record but chocolate prices stayed high - and chocolate has fallen to barely half of US candy spending as shoppers switch to gummies

OBSERVATION: Two years of record cocoa prices appear to be restructuring the US candy aisle rather than just temporarily raising prices. Cocoa futures peaked above $12,000/tonne in late 2024, crashed to roughly $3,300/tonne by early spring 2026, and traded near $5,600-6,300 in September 2026 - yet chocolate retail prices never came down: BLS sugar-and-sweets prices rose another 7.4% July 2025-July 2026 and USDA forecasts +7.1% for calendar 2026 (range 6-8.2%). Meanwhile demand moved structurally: chocolate fell from roughly two-thirds of American confectionery spending a decade ago to 51.7%; non-chocolate candy rose from 33% (2015) to 40.9% (2025); chocolate's share of Halloween candy volume slipped from 52% to 44%. Volume losses show up at every chocolate maker: Lindt raised prices 11.8% and lost 7.5% of chocolate volume in H1 2026; Barry Callebaut's Q3 consumer purchases fell 4.4% globally; Hershey's Q4 2025 volume fell ~3-5 points against ~10% Q4 pricing; Mondelez's hikes cost it volume and produced flat-to-5% 2026 EPS guidance, softer than analysts hoped. Manufacturers rebuilt margins on pricing, not cheaper beans: Hershey's Q4 2025 gross margin collapsed 17 points to 37%, operating margin fell 32.5%->14.4%, net income fell 59.9% to $320M (cocoa + tariff absorption) - then it guided a 30-35% adjusted-EPS rebound for 2026 ($8.20-8.52) on held pricing plus an assumption of cocoa easing ~10% YoY. Both Hershey and Mondelez hedged most of their 2026 cocoa above where the market fell, so the spring crash 'barely reached their income statements' and shoppers never saw a discount. Cocoa and chocolate (HTS ch. 18-19) were also exempted from IEEPA reciprocal tariffs by the Nov 14 2025 EO, retroactive to Nov 13 with refunds per CBP procedures - removing the tariff leg of the cost story. Packaging changes ran alongside: 'price pack architecture' (fewer pieces per bag), reformulation, and supply-chain restructuring at Hershey and Mondelez to reduce cocoa exposure.

Inference (flagged as interpretation)

the spike functioned as a one-way ratchet - list prices, shrunk packs, and reformulated recipes are sticky, and customers who traded to gummies and sour candy (cheaper per pound, now holding chocolate's former shelf space) may not return even if input costs fully round-trip; Hershey's CEO expects 'slightly lower volume sensitivity to pricing actions,' a bet that the remaining chocolate buyers are the inelastic ones. Now supply is whipsawing again: Ghana's regulator projects 2026/27 output down at least 16% (BMI: -9.1% to 627kt), Ivory Coast down 10-18% (BMI: -17.5% to 1.7Mt), NOAA puts 95% odds on a very strong El Nino Oct-Dec, and 2026/27 balance forecasts diverge wildly - Guan Chong's CEO sees a 300,000-400,000-tonne DEFICIT and ~$8,000/t by December, while BMI sees an 82,000-tonne surplus ($4,990/t average) and Hedgepoint 111,000 tonnes. The industry that spent two years repricing and reformulating for scarcity does not know whether scarcity is back.

Contradictory evidence (marked non-supporting)

grindings - the physical measure of cocoa demand - ROSE 6.1% YoY in Q2 2026 (North America +7.7%, Asia +25.1%; Europe -4.6%), and 2024/25 closed with production up 8.5% and a 37,000-tonne surplus, so processor demand is not collapsing; the above-spot hedging means slow retail pass-through is partly legitimate cost accounting rather than pure margin capture; and cocoa at $5,600-6,300 remains more than double its ~$2,400/t 2022 average, so 'crashed' overstates the relief chocolate makers actually received.

Biggest unknown

whether chocolate's share loss is cyclical or permanent - there is no published data on whether candy-aisle share reverts after a price-driven substitution episode - and which 2026/27 forecast (300-400kt deficit vs ~100kt surplus) is right, which decides whether the makers' 2026 margin-rebound guidance survives its own input-cost assumption and whether a second spike hits an aisle that has already lost its chocolate majority.