Cocoa futures surged to a new record in New York, driven by growing supply concerns that could deepen the financial challenges already facing chocolatiers and consumers alike.
As the price of cocoa continues its climb, chocolate makers like Hershey Co. are under pressure to increase prices, further exacerbating the impact on consumers already grappling with high costs.
On Monday, cocoa futures rose by as much as 4.8%, reaching $11,839 per ton.
The commodity has nearly tripled in price this year, fueled by persistent supply deficits, primarily caused by poor harvests in West Africa, which produces the majority of the world’s cocoa.
Although the current main-crop harvest has been somewhat stable, the smaller mid-crop outlook has taken a hit due to severe weather conditions. Heavy rains have flooded farms, while the arrival of the dry Harmattan winds is drying out the soil, straining crops.
The cocoa industry’s supply woes are compounded by longstanding challenges, including crop diseases and low wages for farmers, which have hindered efforts to boost production. Additionally, the long maturation period for newly planted cocoa trees means a recovery in output will take years, delaying any substantial rebound in supply.
What you should know
The tightness in global cocoa stocks is reflected in dwindling U.S. exchange inventories, which have continued to fall as chocolate companies, facing a major supply shortfall from the previous season, have been forced to draw down their reserves.
- This tight supply has bolstered prices, prompting a more bullish sentiment among hedge funds, particularly in New York and London.
- The market’s volatility has been further exacerbated by rising costs for traders to maintain their positions, prompting a wave of bet closures. In November, open interest on cocoa futures fell to its lowest point in a decade, signalling thinning liquidity, which may fuel further market fluctuations in the months ahead.
- Despite the record-high prices, experts predict that cocoa prices will likely ease in the coming year. The recent surge is expected to prompt more production and dampen consumption, potentially cooling the market. Rabobank analysts have indicated that while the rally has been aggressive, it may ultimately lead to a shift in supply-demand dynamics, bringing prices down.
For now, however, the chocolate industry and consumers face the brunt of these supply constraints, which could leave lasting effects on both production costs and consumer prices in the foreseeable future.