Over 8 thousand dollars per ton: the price of cocoa on the New York stock exchange broke all records and reached an all-time high in Friday’s session. In the last 12 months alone, the market price of cocoa beans has increased by 199.6%. An increase that was only minimally reflected on the labels of chocolate on sale to the public but which promises to make it the next “case”, after those of corn and potatoes. An investigation by the Financial Times lifted the veil on the new bubble in the agricultural raw materials market: after the poor cocoa harvests in West Africa, the hedge funds smelled the air of a deal and from the end of December 2023 they began to subscribe at best futures contracts especially on the New York Cocoa Exchange.
According to data collected this week by the Commodity Futures Trading Commission, the authority that supervises the raw materials markets, reported by the British financial newspaper, the upward positions opened in the last three months by hedge funds amount to approximately 8.7 billion dollars . A situation that had never occurred in the history of this commodity.
As always happens, speculation has accentuated a trend already underway on the raw cocoa market. Growers in Ghana and Ivory Coast – the top two world producers who alone covered 60% of global needs – have been recording increasingly poor harvests for three years due to a virus transmitted to plants by a cochineal insect which drastically reduces production of cocoa beans. And local farmers do not have the financial resources to afford the pesticides essential to eradicate the disease.
SPROUT VIRUS
The effects of the Cocoa swollen shoot virus disease, literally “cocoa swollen shoot virus disease”, added to those of the adverse conditions caused by ongoing climate change have cut production in many production districts by up to 40%. The shortage of raw material is such that even the American multinational Cargill, the main buyer of cocoa beans produced in Ivory Coast, has had to stop roasting activities in Africa and will operate at 20% of its capacity from 2024. Therefore, on the markets at origin there is in fact a strong shortage of raw materials, which has been ongoing since at least 2020. Particularly fertile ground for speculators. According to Martin Bron, global head of cocoa and chocolate trading for Cargill until 2022, hedge funds have “the largest exposure to cocoa risk ever recorded.”
They are not the trigger for the price increase, “but in a market context with low liquidity, they can amplify market movements even at extreme levels”. Those reached by raw cocoa these days at the New York Cocoa Exchange. And the speculative strategy is paying off in terms of earnings. According to a study recently published by Société Générale, which aimed to discover the winning investment strategies in this first part of 2024, the profits made with cocoa are at the top of the list of profits made by funds operating on food raw materials.
EFFECTS ON CHOCOLATE
For now, the price increases at the source have only partially passed through the supply chain that leads from cocoa beans to chocolate. The increases for Easter eggs have already started. Codacons calculates an average price increase of 24%, after the +15.4% recorded in 2023. Even the eggs intended for children at a fixed price of one of the most widespread brands in Italy, explains the association, have moved into the version of 150 grams from 9.99 euros last year to the current 11.99 euros, with a net increase of 2 euros, i.e. 20%. The highest-end eggs for adults, with milk or dark chocolate and weighing between 320 and 365 grams, reach more than 18 euros per piece, with increases of more than 33% compared to the 2023 price lists. For some eggs well-known brands specializing in chocolate, the increases even exceed +40%. Things are a little better for products aimed at children: the prices of eggs linked to cartoons, games, famous people or TV series increase on average by 16.7% compared to last year. On average, the production of Easter eggs in our country exceeds 31 thousand tons per year, with a turnover estimated at over 300 million euros in 2023: this means that, for the same purchases, the increases will weigh around 72 millions of additional euros on consumers’ pockets.
But the effects of the cocoa bubble will only be fully felt starting from late spring, when the lots purchased at current prices – 8,150 dollars a ton for futures with delivery in May – will go into production in Europe.
