Cocoa Prices Soar to Record Highs Amid Global Supply Shortage

Cocoa prices have experienced the highest volatility in nearly 50 years, reaching all-time highs and causing significant market instability since the 1970s. Futures have surged about 160% already this year, with cocoa jumping as much as 5.2% to $10,985 a ton on Wednesday after snapping a 9% two-day slide. The rally has made it more expensive for traders to maintain positions, prompting some to close out trades and drain liquidity, making the market more vulnerable to large price swings.

The primary driver behind the price surge is a severe global deficit of cocoa beans anticipated to persist in the near future due to poor harvests in West Africa, which supplies nearly 80% of the world's cocoa. The Ivory Coast, the world's largest producer, is expecting its 2023-24 production to fall 21.5% year-over-year to an 8-year low. Ghana, another major producer, is also facing supply challenges. Unfavorable growing conditions, crop disease, and the current El Nino weather event have further fueled the rally in cocoa prices.

Why this matters: The soaring cocoa prices are putting pressure on chocolate brands to increase prices, which could lead to reduced consumer demand. The cocoa crisis looms large and highlights the vulnerability of the global chocolate industry to climate change and the need for more sustainable and equitable farming practices in the cocoa sector.

The global cocoa deficit is expected to widen in 2023-24, as current production is insufficient to meet demand. The Ivory Coast government's decision to halt forward cocoa sales for the 2024-25 season has added to the tumult in the region's cocoa supplies. However, there is potential for global cocoa production to recover in the next season as weather shifts from El Nino to La Nina conditions, which is expected to positively impact the upcoming production cycle in West Africa.

Alex Asanvo, Executive Secretary for Cote d'Ivoire Ghana Cocoa Initiative (CGCI), said global cocoa buyers have exploited the market to their benefit, leaving farmers and producing countries at the bottom of an inequitable trade regime. "There are excessive demands from buyers on producing countries without commensurate actions from the market players themselves," Asanvo noted, emphasizing the need for accountability and transparency from all stakeholders in the cocoa value chain.

Key Takeaways

• Cocoa prices have surged 160% this year, reaching all-time highs due to severe global supply deficit.
• Ivory Coast and Ghana, top producers, face declining cocoa production due to poor harvests and climate issues.
• Soaring prices pressure chocolate brands to raise prices, potentially reducing consumer demand.
• Global cocoa deficit expected to widen in 2023-24, but may recover in 2024-25 as weather shifts.
• Cocoa farmers and producing countries feel exploited by global buyers in an inequitable trade regime.