Cocoa prices reached an all-time high in Feb. 5 trading, fueled by mounting global supply challenges and deficit fears, spelling trouble for investors with a sweet tooth.
Prices for cocoa surged by $53, or 1.02 percent, to a record $5,242 per metric ton on the U.S. ICE Futures exchange. Year-to-date, cocoa has rallied by nearly 25 percent and has soared by more than 103 percent over the past 12 months.
The previous record was in July 1977.
Cocoa futures are responding to increasing supply challenges in West Africa.
Availability in the region remains “restricted,” and investors are weighing “another production deficit” against year-ahead demand, according to Jack Scoville, vice president of The PRICE Futures Group.
“Traders are worried about another short production year, and these feelings have been enhanced by El Nino ... threatening West Africa crops with hot and dry weather,” he wrote in a Feb. 5 note. “Ideas of tight supplies remain based on more reports of [continued] reduced arrivals in Ivory Coast and Ghana.”
Black pod disease, a fungal disease of cocoa trees, has been another factor that has ravaged output and exacerbated worldwide supply woes.
The cocoa market has experienced two consecutive crop years of a deficit and is poised for a third.
The International Cocoa Organization (ICCO) forecasts that the global cocoa deficit is about 99,000 metric tons.
Arrivals in Ivory Coast, the world’s largest cocoa producer, have tumbled 36 percent year-over-year since the beginning of the harvest in October 2023, government statistics estimate. In total, exporters have shipped 1 million metric tons of cocoa between Oct. 1, 2023, and Jan. 28.
In response to uncertainties, the nation’s cocoa regulator, Le Conseil Cafe-Cacao, suspended sales for the 2024–25 season until production stabilizes.
Comparable conditions are being reported in Ghana, the world’s second-largest producer. The nation’s top cocoa regulator has been warning for months that local farmers might be unable to meet contract demands for the second straight year.
Since the summer, Ghana has delayed about 44,000 metric tons of cocoa shipments because of a lack of inventories. The 2022–23 marketing season slumped to a 13-year low of about 683,000 metric tons. However, in the year ahead, production is expected to rise by 24 percent to around 850,000 metric tons.
In addition to weather issues, Ghana is facing a fertilizer shortage. The African nation imports nearly all of its fertilizer needs, so the war in Eastern Europe and trade disruptions have affected the country’s agricultural sector.
Opportunities for producing cocoa beans in Latin America are rising. Dominique Faget /AFP/ Getty Images
Other smaller cocoa producers, such as Nigeria, are unlikely to meet demand, industry leaders warn. Nigerian exports have declined at an annualized pace of 32 percent. However, the federal government aims to bolster cocoa output by 47 percent to 500,000 metric tons by year’s end.
The good news, which might place a minor cap on the meteoric ascent in the futures market, has been on the short-term weather front. Isolated showers have been forecast for West Africa, while temperatures are expected to be close to normal.
Demand Becomes the Focus
It’s widely anticipated that surging cocoa prices will trim global demand, which could help cool prices in the coming months, according to Paul Joules, a commodities analyst at RaboResearch.
“While we anticipate a moderate cooling of prices in 2024, it will not result from an improving supply picture. Instead, a decline in demand is expected to be the primary factor leading to lower prices in 2024,” he wrote in a December 2023 note. “However, we still expect prices to remain inflated in 2024, as ongoing supply-side issues seem set to limit downside potential.”
That’s beginning to be seen.
Cocoa grindings tumbled by 3 percent year-over-year in the fourth quarter of 2023 to 103,971 metric tons, according to the National Confectioners Association (NCA).
In a separate report, the U.S. industry trade group reported that confectionary sales eased by 9.7 percent in the 52 weeks that ended on Dec. 3, 2023, driven by a slowdown in chocolate sales.
“Typically sold at a higher price per pound and total package price, chocolate appears to be experiencing greater marketplace pressure than its non-chocolate counterpart,” the NCA stated.
Similar trends are being seen elsewhere in the global marketplace.
The European Cocoa Association reported a 2.5 percent year-over-year drop in cocoa grindings in the October-to-December 2023 span, while the Cocoa Association of Asia saw an 8.5 percent decrease.
Because consumers are paying more for chocolate products as companies pass higher manufacturing costs on to shoppers, candy makers could come under substantial pressure, according to Billy Roberts, senior food and beverage economist for CoBank.
“The cocoa issues come at a particularly challenging time for manufacturers, considering the increase in sugar prices they’ve been coping with over the past three years,” he said in a new research brief. “While sugar prices have recently retreated, cocoa futures prices remain near record levels and show little sign of any significant movement. That could lead to a further erosion of chocolate volume sales and begin to impact dollar sales as well.”
This year, a blend of tighter cocoa supplies and higher retail prices for chocolate could lead to “single-digit declines in both dollar and unit sales” in the United States.
Until then, chocolate lovers might want to “start hoarding quickly,” according to Mark Newton, managing director and global head of technical strategy at Fundstrat Global Advisors.
He wrote on X (formerly known as Twitter), “Now that dry January is done, and most of your diets are gone by the wayside ... get those Wonka bars and see if you have the golden ticket.”
Andrew Moran
Author
Andrew Moran has been writing about business, economics, and finance for more than a decade. He is the author of "The War on Cash."
