Global cocoa prices are witnessing a meteoric rise, reaching new historic levels on Thursday, amidst ongoing struggles by traders to secure supplies due to forecasts of a larger deficit during the current season and increased concerns about the next season.
The surge in prices is reflected on store shelves, where the American chocolate manufacturing company Hershey expects a further decline in demand for its products by consumers, following a 6.6 percent drop in sales volume in the fourth quarter. Hershey, whose stocks have declined by approximately 30 percent from their peak in May 2023, earlier stated that it anticipates the increase in cocoa prices to limit its profit growth this year.
Sales volumes also decreased for its competitor, Mondelez International’s Cadbury, in the last quarter.
Hershey’s CEO, Michele Buck, stated on Thursday that the profit growth of the chocolate industry will remain steady this year due to historically high cocoa prices.
Hershey reported a net income of $349 million for the fourth quarter, a decrease of about 12 percent compared to the same period last year.
El Niño Devours Cocoa
The climatic phenomenon El Niño, causing higher temperatures in West Africa, is damaging crop yields in Ghana and Ivory Coast, the two largest cocoa producers.
Hamza Hussein, the commodity analyst at TD Asset Management, told CNBC on Thursday, “Changing weather patterns mean that potential cocoa yields are now permanently weak.”
Jim Ritter, a meteorologist and commodity trading advisor at Best Weather Inc, added, “Looking back 47 years, every major price increase has been followed by a significant price decrease of about 20-50% over a period ranging from one to two years. Is this situation different? According to our sources in cocoa farms in West Africa… yes!”
He further stated, “At least for the time being, supply constraints are likely to continue for another month or two,” citing the current damage inflicted on cocoa crops due to strong Harmattan winds in the West African region, the largest cocoa producer.
Earlier, analysts at Commerzbank wrote in a note, “There are fears that the dry weather fueled by the Harmattan winds may affect mid-crop yields in West Africa, which begins in April.” Harmattan winds are cold and dry winds that blow from the northeast or east in the Western Sahara.
According to Commerzbank, cocoa exports from Ivory Coast, the largest cocoa-producing country, have fallen by 35 percent since the beginning of the harvest season in October until the end of January, compared to the same period last year.
Cocoa futures in London hit a record level at £4,670 per ton during Thursday’s session on the ICE exchange before closing at £4,660 per ton, up 7.3 percent for the week, nearly doubling in price since the beginning of last year.
On the New York exchange, cocoa futures reached a new all-time high at $5,874 per ton, closing up 7.3 percent at $5,805 after rising by about 90 percent since the beginning of last year.
Exporters and grain traders in Ghana, the second-largest cocoa producer, told Reuters that cocoa production for the current 2023-2024 season is expected to reach only 475,000 to 500,000 tons, compared to 655,000 tons last year.
Last week, a Reuters poll forecasted a global deficit of 375,000 tons in the 2023-2024 season, more than double the average expectations in the previous poll in August, indicating a third consecutive deficit in the market.
An industry source told Reuters that traders fear the shortage may extend into next year, with the need to compensate for the lost quantities of this season’s crop with beans from the next season.
In other soft commodities, raw sugar rose 0.4 percent to 23.98 cents per pound, while white sugar rose 1.4 percent to $665.70 per ton.
Arabica coffee fell 1.1 percent to $1.8585 per pound, while Robusta coffee lost 0.2 percent to $3,109 per ton.