A farmer holds cocoa beans as he dries them in a village in Sinfra, Ivory Coast, on April 29, 2023.
Luke Gnago | Reuters
Consumers may start to feel the effects of a surge in cocoa prices as the world faces its worst supply shortfall in decades as farmers in West Africa struggle with bad weather, disease and dead trees.
Cocoa futures for delivery in May jumped to an all-time high of $10,080 a metric ton on Tuesday before ending the day down 0.3% at $9,622. The price of cocoa has more than tripled over the past year and is up 129 % in 2024
Hershey CEO Michelle Buck told CNBC last month that the company has a hedging strategy to manage price volatility. The National Confectioners Association told CNBC in an email that the industry is working with retailers to “reduce costs” and keep chocolate affordable for consumers.
Although the big chocolate companies were well hedged last year and did not have to immediately pass on the high prices to consumers, there is only so much the industry can do to absorb the costs, said Paul Joules, commodity analyst at Rabobank.
The world is facing its biggest cocoa supply shortfall in more than 60 years, and consumers may start feeling the effects late this year or early 2025, Joules said. The International Cocoa Organization forecasts a supply shortfall of 374,000 tonnes for the 2023-24 season, a 405% increase from a shortfall of 74,000 tonnes the previous season.
“The worst is yet to come,” Joules said. Cocoa prices are likely to remain high for some time because there are no easy solutions to the systemic problems facing the market, he said.
Cocoa in the last 12 months
Consumers could face higher prices or “shrinkage inflation” in the form of smaller chocolate bars, Joules said. Companies can also adjust ingredients to use less cocoa in some products, he said. The worst sticker shock would come from dark chocolate, which has a very high cocoa content, the analyst said.
David Branch, sector manager at Wells Fargo’s Agri-Food Institute, said consumers could see higher prices immediately after Easter, which is Sunday.
“Given that cocoa prices and other production costs have risen steadily over the past year, consumers are likely to see a spike in chocolate prices this Easter,” Branch told clients in a research note this month.
Cocoa prices rose due to supply disruptions 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 been affected by black pod disease and swollen shoot virus, and many trees are past their maximum yield potential because there hasn’t been much planting since the early 2000s, Joules said.
Heavy rains exacerbated disease problems, Branch said, and the El Niño weather phenomenon also led to drier conditions, leading to lower cocoa yields in previous years. Seasonal harmattan winds were more extreme this year, which also affected yields, Branch said.
Farmers in Côte d’Ivoire are increasingly abandoning cocoa production for more lucrative crops such as rubber, Joules said. The governments of Ghana and Ivory Coast set fixed prices for farmers at the start of the season, so they are not benefiting from the current rally, the analyst said.
The recent spike is likely due to panic among some commercial buyers rather than market speculation, Joules said. Buyers are seeing the magnitude of the supply shortfall and are trying to secure the available cocoa, according to the analyst.
Speculators contributed to the early stage of the rally last year as they bet on higher prices by increasing their long positions, Joules said, but they exited those positions this year to book profits.
The surge in prices hit chocolate giant Hershey, which posted flat profits for the year. Hershey shares are down about 22% over the past 12 months, while Swiss-listed Nestle shares have lost about 13% over the same period.