Cocoa prices have skyrocketed to unprecedented levels, surging above the once-unthinkable mark of $10,000 per ton. This extends an historic rally that has already seen cocoa futures double in value since the start of 2023, causing substantial increases in the cost of chocolate production.
The cocoa market frenzy is being driven by dismal crop yields in major West African growing regions, which supply the bulk of the world’s cocoa beans. Successive years of shortfalls have put the global market on track for a third consecutive annual supply deficit. The industry is grappling with longstanding issues of inadequate farmer income that have undermined production levels. As a result, fears are mounting about the ability to source sufficient cocoa to meet demand.
Beyond just tight physical supplies, the futures market itself is experiencing immense financial pressures. Some traders who sold futures contracts to hedge their physical bean holdings are now struggling to cover margin calls on those losing derivative positions as prices soar higher. This cash crunch is forcing some to unwind their short positions, creating a self-reinforcing upward spiral.
On Tuesday, cocoa futures spiked as high as $10,080 per ton on the New York market, up 4.5% on the day and levels that seemed virtually impossible just months ago. Cocoa’s dizzying price ascent has pushed technical indicators into extremely overbought territory for extended periods, yet the rally charges on unabated.
“When we’re at this price, it’s hard to tell whether these prices are justified,” said Paul Joules, a Rabobank analyst. “Whenever we have a dip in the market, it seems to shoot straight back up, which is more to do with the commercials, they’ve been net buyers.”
For chocolate consumers, cocoa’s stratospheric rise translates into higher prices at retail as manufacturers are forced to pass along costs or shrink package sizes and cocoa content. The impending Easter holiday, a peak chocolate consumption period, means the full brunt of cocoa’s price impact has yet to be felt by shoppers.
The supply crunch may intensify further due to upcoming EU regulations aimed at curbing deforestation. These new rules could make it even harder for European chocolate makers to secure adequate cocoa supplies from established growers.
All eyes are now on the upcoming mid-crop harvest in West Africa, the smaller of the region’s two annual cocoa harvests. But with top producer Ivory Coast’s regulator already projecting a decline, near-term relief seems unlikely. Longer-term efforts by other producers like Brazil and Ecuador to boost output will take years to materialize as new cocoa trees mature.
Industry reports warn the ratio of global cocoa stockpiles to grindings will plunge to its lowest level in over 40 years this season, underscoring the market’s precariously tight supply position. With unrelenting upward momentum, cocoa’s spectacular price spike shows no signs of cooling anytime soon.
