Why you’ll soon pay more for less of your favourite chocolate

Cocoa futures rose to a fresh intraday record, topping $US7000 a tonne in New York overnight Tuesday for the first time, as supply concerns drive a rally that shows no sign of offering relief for chocolate makers.

The most-active contract jumped as much as 5.5 per cent to $US7096/t on Tuesday, bringing gains for the year so far to about 68 per cent.

Higher costs have placed pressure on chocolate makers, as output in top growers Ivory Coast and Ghana continues to buckle amid adverse weather conditions and structural concerns like aging, diseased trees.

Arrivals at Ivory Coast ports are still about 30 per cent below year-ago levels, and the grower’s mid-crop harvest starting in April isn’t expected to provide enough relief. The country’s regulator sees the mid-crop harvest totaling 400,000 to 500,000 tonnes, Bloomberg reported last Thursday. That compares with 600,000 to 620,000t a year earlier.

Citi Research analysts including Aakash Doshi said in February that New York cocoa futures could trade in a range between $US7000 and $US10,000/t if West African supply continues to deteriorate without any meaningful contraction in demand. In that scenario, a retreat in prices may not come until the second half of 2025, the analysts said.

The situation has prompted chocolate makers like Hershey to hike prices, shrink packages and push new products that use less cocoa.

While hedging and physical stockpiles currently provide a buffer, chocolatiers’ costs — and then consumer prices — are “set to inflate” over the next six to 12 months, according to Bloomberg Intelligence analysts Diana Gomes and Ignacio Canals Polo. Volume losses could continue into 2025, the analysts wrote in a note last week.

So far, though, the significant supply shortages are overshadowing chocolate demand concerns. The International Cocoa Organisation sees demand outpacing supply by 374,000t for the current October-September year, while Swiss chocolatier Barry Callebaut anticipates a 500,000t deficit this season.

Demand fears have been subdued in the face of poor growing weather, low production and slow arrivals, analysts at the Hightower Report wrote in a Tuesday note, adding that slight improvements in West African weather and the pace of arrivals haven’t been “enough to get the bulls concerned.”

Structural issues in West Africa including disease and an aging tree stock are also stoking fears that deficits will continue next season.

Higher farmer incomes could boost investments in production, but growers in Ivory Coast and Ghana are not yet reaping the full rewards of the cocoa rally as prices are set by governments based on sales made a year earlier. Other countries like Ecuador and Brazil are ramping up production, but trees take at least three years to produce pods.

Expanding acreage for cocoa trees is also limited, as impending European Union regulations are soon to prevent the trade of products linked to deforestation in the bloc.

“Beyond the largely weather-related short-term supply side issues behind recent price increases, solutions to long-term concerns are urgently required,” BMI Research analysts wrote in a note last week.

Bloomberg