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- Chocolate Is Getting Expensive, Here's why!
Chocolate Is Getting Expensive, Here's why!
Cocoa prices hit $10,000 per metric ton for the first time ever
Cocoa prices are skyrocketing, posing significant implications for consumers worldwide.
Futures for May delivery were up 3.9% at $10,030 per metric ton, marking the first time the commodity broke above the $10,000 mark.
Challenging weather patterns and the outbreak of diseases have impacted cocoa production in West Africa, a region responsible for approximately 70% of the world's cocoa supply. The primary producers, Ivory Coast, and Ghana, have faced adverse conditions such as heavy rainfall, dry heat, and disease outbreaks.
In a report released in November by the International Cocoa Organization, it was noted that farming activities in both countries were affected by heavy rainfall and the spread of black pod disease. Additionally, inadequate road infrastructure exacerbated the situation, hindering the transportation of available cocoa beans to ports for export.
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Major chocolate companies have been using hedging strategies to manage price volatility and avoid passing on higher prices to consumers.
Last month, Hershey CEO Michele Buck revealed to CNBC that the company has implemented a hedging strategy to navigate through price fluctuations. The National Confectioners Association, in an email to CNBC, stated that the industry is collaborating with retailers to control costs and ensure that chocolate remains affordable for consumers.
Despite significant hedging by major chocolate companies last year, which spared consumers from immediate price hikes, Paul Joules, a commodities analyst at Rabobank, pointed out that there are limits to how much the industry can absorb rising costs.
The cocoa market is currently experiencing its most significant supply deficit in over six decades, with consumers likely to feel its impact by the end of this year or early 2025, according to Joules. The International Cocoa Organization has projected a supply deficit of 374,000 tons for the 2023-24 season, marking a 405% increase from the previous season's deficit of 74,000 tons.
Joules cautioned that the situation could worsen further, emphasizing that cocoa prices are expected to remain high for the foreseeable future due to the absence of simple solutions to the underlying systemic issues plaguing the market.
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