Summary: Cocoa is experiencing a sweet surge - not in flavour, but in its market value. Discover the factors driving up cocoa prices by exploring the complexities of supply shortages, rising production costs, and how these elements intertwine to shape the current cocoa conundrum.
In the realm of food commodities, witnessing a sharp increase in prices is a rare event. Yet, this is precisely what's unfolding in the cocoa market. Over the past year, NY cocoa prices have soared by more than 200%, including a notable surge of 97% just in this year. The London based cocoa future has rallied even stronger, with the May 2024 futures contract up 105% YTD.
This significant uptick can be traced back to a combination of factors, especially in West Africa. Here, the Ivory Coast and Ghana are recognised as the leading global producers of cocoa beans. The past year has introduced challenging weather conditions in these countries, particularly intense heat, which has negatively impacted cocoa production.
Furthermore, the escalating costs of pesticides and fertilisers have imposed financial strains on farmers, making it harder for them to procure these vital components for crop maintenance. Complicating matters are the pests that have targeted cocoa plants, further diminishing yields.
The prevailing circumstances pose an interesting scenario for traders and investors alike. With cocoa production witnessing a downturn—evidenced by a 40% decrease in arrivals at Ivory Coast ports compared to the previous season—the supply chain has felt the pinch. This reduction in supply occurs as a significant portion of the cocoa is pre-sold to companies and manufacturers of cocoa and chocolate products. Faced with the challenge of fulfilling these commitments, these entities are compelled to look for alternative sources. This scramble for cocoa has led to a squeeze in the futures market for cocoa prices.
From the consumer's standpoint, the immediate effects of the spike in cocoa prices might not be directly noticeable. Typically, it can take anywhere from 6 to 12 months for such price hikes to be reflected in the retail pricing of products. Nevertheless, in the forthcoming period, consumers should brace for an uptick in chocolate bar prices.
Additionally, the trend of shrinkflation is likely to become more pronounced. This practice involves reducing the size of chocolate bars or the quantity of chocolates in a package while keeping prices constant. Consequently, while there might not be a stark rise in the price tags of chocolate items, the quantity offered for the same price will see a reduction.
Edit note: Performance data for cocoa updated March 19, 2024.
2024: The wasted year
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
Markets are driven by election optimism, overshadowing growing debt and liquidity concerns. The 2024 elections loom large, but economic fundamentals and debt issues warrant cautious investment.
As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
With the economic slowdown, quality assets will gain favour, especially sovereign bonds up to 5 years. Central banks' potential rate cuts in Q2 suggest extending duration, despite policy and inflation concerns.
Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.