The extraordinary cocoa rally continues and becomes a case in the raw materials sector.
Futures for May delivery rose 3.9% to $10,030 per tonne on Tuesday, March 26, marking the first time the commodity crossed that mark. In trading on March 28, the raw material was trading at $9,945 per ton, remaining close to the record.
March earnings therefore grew by approximately 54% and the year-to-date increase is more than 130%. According to some observers, the raw material can be considered the new Bitcoin thanks to this unprecedented jump in price. Numbers in hand, the cocoa has in fact obtained better yields compared to crypto and most stocks and bonds.
Cocoa, skyrocketing prices for these reasons
The shortage of supply is primarily behind the unprecedented surge in cocoa prices. The world is facing the largest cocoa supply deficit in 60 years and consumers could start to see the effects late this year or early 2025 according to commodities analyst at Rabobank Joules.
The International Cocoa Organization forecasts a supply gap of 374,000 tonnes for the 2023-24 season, a 405% increase from the previous season’s 74,000 tonnes deficit.
The decrease in the harvest in the main producing countries, Ivory Coast and Ghana, has in fact led to supply shortages. Not only that, El Niño caused heavy rains in December, impacting plantations and favoring the spread of pod disease.
Subsequent extreme heat, aging cocoa trees, and illegal extraction further reduced production. Ghana has revised its cocoa production forecast to 650,000 tonnes from 850,000 tonnes this year. Recent reports have also indicated that some cocoa factories in Ivory Coast and Ghana have stopped or reduced processing operations because they could not afford to purchase new beans.
Meanwhile, Ivory Coast’s cocoa regulator said it expects the country’s average harvest, which officially starts in April and is the smaller of the two annual harvests, to fall 33% to 400,000 tonnes compared to 600,000 tons last year.
Adding these elements together, cocoa prices have headed towards $10,000 – a level that seemed unthinkable just a few months ago – and have even made the raw material more expensive than copper. The ISPI graph is eloquent in showing this leap:
World cocoa price
Price surge
There is a risk that the supply situation could get even worse. The new European Union rules – aimed at preventing the sale of products that destroy forests – could make it harder for the bloc’s main chocolate makers to secure supplies.
Cocoa price, what future?
According to the analysis of Josh Gilbert, strategist at eToro, “this surge will inevitably have a impact on the pockets of the average consumer, particularly as holiday periods such as Easter approach. …retailers are faced with increasing costs related to transportation, labor and packaging, which should be borne by consumers”.
At present, i high chocolate prices they are destined to become the norm. This is due to the need for manufacturers and retailers to replenish their inventories at higher rates, the analyst added.
Bloomberg Intelligence expert Diana Gomes noted that chocolate could be even more expensive come Easter 2025 if cocoa tree diseases and weather prolong the deficit amid high sugar prices.
“The worst is yet to come”, Joules said. Cocoa prices will likely remain high for some time because there are no easy solutions to the systemic problems facing the market, he said.
Consumers could face higher prices or “shrinkflation” in the form of smaller candy bars. Companies could also change ingredients to use less cocoa in some products. The worst shock would come from dark chocolate, which has a very high cocoa content, the analyst said.
In his assessment, the recent rally is likely due to panic among some commercial buyers rather than market speculation. Buyers see the size of the supply shortfall and are trying to secure available cocoa.
