Cocoa Crisis: Prices Hit Record Highs Amid Supply Deficit, Dark Chocolate Lovers to Bear the Brunt

📝 SUMMARY: The global cocoa market is experiencing unprecedented volatility, with cocoa futures for May delivery reaching an all-time intraday high before settling at $9,622 per metric ton. This surge represents a more than threefold increase in the past year, with a 129% rise in 2024 alone. The sharp increase is attributed to the worst supply deficit in decades, exacerbated by challenging conditions in West Africa, including poor weather, disease, and aging cocoa trees.

The International Cocoa Organization forecasts a supply deficit of 374,000 tons for the 2023-24 season, a staggering 405% increase from the previous year. This shortfall signals a potential crisis for chocolate production, with industry giants like Hershey already adopting hedging strategies to manage price volatility. Despite efforts to mitigate impacts, analysts warn that consumers could soon face higher chocolate prices, especially for dark chocolate, which requires more cocoa.

Factors contributing to the crisis include diseases like black pod and swollen shoot virus, extreme weather conditions such as heavy rains and drier spells from El Niño, and the aging of cocoa trees without significant replanting efforts since the early 2000s. Moreover, farmers in Ivory Coast are shifting away from cocoa to more profitable crops, further straining supply.

The fixed prices set by the governments of Ghana and Ivory Coast for cocoa farmers mean that these producers won't benefit from the current price rally. Meanwhile, chocolate manufacturers may be forced to resort to "shrinkflation" or altering product recipes to use less cocoa.

Speculation and panic buying among commercial buyers have contributed to the price spike, with some market participants securing available cocoa in anticipation of the supply deficit. As a result, companies like Hershey ($HSY) and Nestle face financial pressures, with Hershey's stock down 22% over the past year. The cocoa price crisis underscores the urgent need for solutions to the systemic challenges facing the global cocoa market.

🔍 SOURCE: https://www.cnbc.com/2024/03/26/cocoa-prices-are-soaring-to-record-levels-what-it-means-for-consumers.html