Cocoa Prices Skyrocket: Don't Expect Relief at the Checkout Anytime Soon

As the globe confronts its largest supply shortage in decades as West African farmers battle illness, harsh weather, and dying trees, consumers may begin to feel the effects of rising cocoa prices.

Cocoa Prices Surge to Record Highs

Tuesday saw an all-time high of $10,080 per metric ton for cocoa futures for May delivery before a 0.3% decline to close the day at $9,622. The price of cocoa has increased by 129% in 2024 and more than quadrupled in the last year.

Last month, Michele Buck, the CEO of Hershey's, told CNBC that the business used hedging to control pricing volatility. In an email to CNBC, the National Confectioners Association stated that the sector is collaborating with retailers to "manage down costs" and maintain customer access to chocolate.

There is only so much the sector can do to absorb expenses, according to Paul Joules, a commodities analyst at Rabobank, even if the big chocolate businesses were well-hedged last year and did not have to instantly pass on high prices to customers.

According to Joules, consumers may begin to see the effects of the world's greatest cocoa supply gap in over 60 years by the end of this year or the beginning of 2025. For the 2023-24 season, the International Cocoa Organization has projected a 374,000 tons supply shortage, a 405% rise over the 74,000 tons deficit from the previous season.

Joules said consumers may see price increases or "shrinkflation" in the shape of smaller chocolate bars. He said that manufacturers may change the ingredients in some items so that there is less cocoa. The expert stated that because dark chocolate has a very high cocoa content, it would cause the biggest sticker shock.

David Branch, sector manager at Wells Fargo's Agri-Food Institute, said prices may increase for customers starting on Sunday, Easter.

Supply difficulties in Ghana and Ivory Coast, the two major cocoa-producing countries, have sent prices skyrocketing. The two nations produce almost 60% of the world's cocoa.

Black pod disease and swollen shoot virus have devastated crops, and since there hasn't been a significant planting season since the early 2000s, many trees have reached the end of their possible output.

Branch stated that the disease problems were made worse by heavy rains, and that in prior years, decreased cocoa yields were also caused by drier circumstances brought on by the El Niño weather phenomena. Branch stated that this year's seasonal harmattan winds were more severe, which also had an impact on agricultural production.

Shifting Agricultural Trends in Ivory Coast

Farmers in Ivory Coast are switching from producing cocoa to more profitable crops like rubber. According to the researcher, farmers in Ghana and Ivory Coast do not profit from the present rise since their prices were determined by the governments at the beginning of the farming season.

According to Joules, the current surge is probably not the result of market speculation but rather of fear among certain business purchasers. The expert said that buyers are attempting to grab the available cocoa as they recognize the severity of the supply shortage.

According to Joules, speculators increased their long holdings in order to gamble on higher prices, which helped fuel the early leg of last year's surge. However, this year, they have been selling those positions in order to book gains.

Hershey had flat earnings for the year as a result of the price hike. Over the last year, Hershey's stock has decreased by almost 22%, while Nestle's shares, which are listed in Switzerland, have decreased by roughly 13%.