Confectioners everywhere are on the brink of despair as cocoa prices have now skyrocketed. And this is because there is the largest cocoa supply deficit in recent decades, with farmers in West Africa to fight against bad weather conditions and diseases of their trees.
More than doubling the cost
Cocoa futures for May delivery soared to an all-time high of $10,080 a metric ton on March 26, 2024, further pushing up the cost of one of the key raw materials for many sweets. Cocoa has even more than doubled in cost since last year, while in 2024 alone it has increased by 129%.
Hershey CEO Michele Buck told CNBC last month that the company has a hedging strategy to manage price volatility. So did the US National Confectioners Association, which said the industry is working with retailers to “manage costs” and keep chocolate affordable for consumers.
Although major chocolate companies were well hedged last year and didn’t have to immediately pass on high prices to consumers, the industry has reached its limits in trying to absorb costs, Paul Joules, commodities analyst at Rabobank, told CNBC.
The world is facing its biggest cocoa supply shortfall in more than 60 years, and consumers could start seeing the effects late this year or early 2025, Joules said. The International Cocoa Organization has forecast a supply shortfall of 374,000 tonnes for the 2023-24 season, up 405% from a shortfall of 74,000 tonnes the previous season.
“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 issues facing the market, he said.
What it means for the market
Consumers could see higher prices or “shrinkage” in the form of smaller chocolate bars, Joules estimated. Companies may also adjust ingredients to use less cocoa in some products, he said. The worst shock would come from dark chocolate, which has a very high cocoa content, the analyst said.
David Branch, field director at Wells Fargo’s Agri-Food Institute, said consumers could see higher prices even through Easter, which for Catholics is next Sunday.
“Given that cocoa prices and other production costs have risen steadily over the past year, it’s likely that consumers will see a spike in prices for chocolate confections this Easter,” Branch said.
The causes
The severe turmoil in cocoa prices is attributed to supply problems in key producing countries Ivory Coast and Ghana, Joules said. The two countries account for about 60% of the world’s cocoa production.
Crops have also been hit by black pod disease and swollen shoot virus, and many trees are past their maximum yield potential because there hasn’t been a major round of renewal since the early 2000s, Joules said.
Heavy rains exacerbated disease problems, Branch said, and the El Niño weather phenomenon also led to drier conditions resulting in lower cocoa yields in previous years. Harmattan seasonal winds were more extreme this year, also affecting crop yields, Branch said.
Farmers in Ivory Coast are increasingly abandoning cocoa production for more lucrative crops such as rubber, Joules also added. At the same time, the governments of Ghana and Ivory Coast set fixed prices for farmers at the start of the season so that they do not benefit from the current rally.
Source: ot.gr
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