Bitter Brew: Cocoa Bean Prices Soar on Supply Wanes and Market Speculations

Following a consistent upward trend over the past two years, Cocoa bean prices have surged once again this year, with future contracts doubling in more than three months and reaching a level in March 2024 twice as high as previous records. While prices remained relatively stable from 2017 to 2022, they spiked by 70% in 2023 and have since doubled in 2024 to reach unprecedented highs. This surge in prices is putting pressure on chocolate manufacturers, leading to sharp increases in chocolate prices ahead of Easter, which is worrying consumers.

Cocoa beans are highly versatile and widely used in various industries due to their distinct flavor and aroma. In chocolate production, Cocoa beans undergo roasting, grinding, and processing to produce Cocoa mass, Cocoa powder, and Cocoa butter, essential ingredients for a variety of chocolate products.

Concerns have arisen regarding a global shortage of Cocoa beans due to adverse weather conditions and persistent crop diseases in specific regions. Heavy rains in 2023 accelerated the spread of Cocoa diseases like black pod rot disease and swollen shoot virus, while Sahara winds dried out pods, reducing yields. By 2024, drought conditions further decreased Cocoa crops, with Ivory Coast and Ghana witnessing a decline in output by approximately 30%. Small family farms, predominant in Cocoa production, are facing challenges in coping with these adversities. Meanwhile, escalating global chocolate demand exacerbates supply constraints. Market analysts anticipate the supply gap persisting, especially with anticipated drier conditions in western Africa. Consequently, chocolate brands are raising prices, with popular Easter chocolates experiencing significant hikes. Analysts speculate that prices could surge by 30% next Easter if crop yields fail to improve.

In the U.S., Hershey has emphasized the importance of list pricing to counter inflation. Over the next couple of years, they are likely to pass on more Cocoa inflation, resulting in higher chocolate prices for consumers. However, this could dampen consumer demand, as companies need to be cautious in managing the elasticity of chocolate demand amidst substantial price increases due to Cocoa costs.

Indeed, chocolate sales have already seen a decline, especially in the U.S., where overall snack sales have dipped, possibly due to their discretionary nature. Within the category, there has been a shift away from chocolate towards other products like cookies or salty snacks.

Furthermore, speculation is driving the unprecedented surge in Cocoa prices. In early 2024, hedge funds and other financial entities heavily invested in Cocoa futures contracts, anticipating further price hikes. This speculative activity propelled prices upward despite minimal changes in market fundamentals. Experts argue that speculators have artificially inflated prices beyond what can be justified by supply shortages alone. Consequently, industry groups are urging governments to intervene by stabilizing Cocoa prices and ensuring an adequate supply passed onto customers. Proposed interventions include stockpiling beans, assisting West African farmers, investing in disease-resistant Cocoa varieties, and exploring alternative cultivation regions. Without such measures, chocolate shortages could become a reality as manufacturers grapple with soaring input costs.

Overall, with projected lower production from West Africa, the International Cocoa Organization (ICCO) estimates that deficits will widen this year. Global Cocoa bean output may fall by 10.9% to about 4.4 million tons in the 2023/2024 season from a revised estimated production of around 4.9 million tons in the 2022/2023 season. This will leave a projected deficit of approximately 374,000 tonnes to meet grinding demand, which is estimated to reach nearly 4.7 million tons. The estimated deficit for the 2023/2024 season represents about a 400% increase from the 74,000-ton deficit in the previous 2022/2023 season.