Workers harvest dry cocoa beans in front of the shop of a cocoa cooperative in Hermankono village on November 14, 2023.
Sia Kambou | Afp | Getty Images
Analysts believe the cost of chocolate’s main ingredient could have room to extend its record-breaking run, with no sign of significant demand destruction yet on the horizon.
Concerns about cocoa supplies in West Africa, which is home to about three-quarters of the world’s production, have pushed the market higher in recent months.
In New York, ICE cocoa futures benchmark on Wednesday it stood at $6,549 per tonne. The contract, which topped $6,000 for the first time last month, is up more than 57% year to date.
Surprisingly, the historic price surge has not yet hampered global demand.
“Typically, what you would expect when you have any kind of agricultural commodity, you would expect to see some demand destruction when you have these astronomically high prices – but we’re not seeing that in cocoa,” Paul Joules, commodities analyst at Rabobank , he said Wednesday on CNBC’s “Squawk Box Europe.”
“You could say one of the reasons we’ve seen cocoa hold up quite well in terms of demand is that it’s probably a compulsive buy for consumers, so we don’t see it having the same kind of demand dynamic as a lot of other products .” raw materials,” she added.
“Also, for a lot of these processes they would have contracts upfront. So, they’re still processing, they still have factories that they have to use and operate, so it’s not necessarily [the] case in which we would immediately see it in the numbers.”
Alain Kablan Porquet’s hand in dried cocoa beans, in Gagnoa, Ivory Coast, November 19, 2023.
The Washington Post | Getty Images
Rabobank’s Joules said he expects to see some demand destruction in the second half of the year, adding that the current supply and demand picture is “very, very tight.”
US chocolatier Hershey, one of the world’s largest chocolate companies, last month issued a profit warning over soaring cocoa prices. The maker of Reese’s Peanut Butter Cups said in a Feb. 8 statement that cocoa prices are expected to limit earnings growth this year.
How much could cocoa prices rise?
“The key question, and also the most difficult, is how high cocoa prices can rise,” Warren Patterson, head of commodity strategy at ING, said in a research note published on February 15.
“They need to reach levels where we start to see significant demand destruction. We are already seeing some of this, but clearly not enough to bring the market back into balance and ease concerns about monetary tightening.”
Patterson said West African cocoa supply remained the “big concern” among market participants. That’s because Côte d’Ivoire is estimated to account for about 44% of global supply, while Ghana holds a share of about 14% of production, she noted.
“Last year, heavier rains than usual raised concerns about the impact it would have on the crop, with an increase in cases of black pod disease. The heavy rains also led to problems with the delivery of cocoa to ports” , Patterson said.
“This year, drier weather conditions and strong Harmattan winds only raise further concerns about the evolution of the current crop.”
El Niño-related drought across much of Southeast Asia, India, Australia and parts of Africa has fueled a surge in prices of soft commodities such as cocoa, sugar and coffee in recent months.
The El Niño phenomenon is a natural climate pattern that occurs when sea temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. It can pave the way for more storms and droughts.