Cocoa prices rose this week, since cocoa production remains under threat due to West Africa’s dry season. Stocks are historically low. Despite the price increases major players secure large quantities of cocoa. Smaller players may be left out in the cold due to price increases.
On January 22, cocoa benchmarks closed higher on the Intercontinental Exchange (ICE). In New York, cocoa prices increased by 7.89% over the previous week, reaching $11,675 per ton. London closed at £9,347 per ton, increasing by 6.87% from the previous week (January 15).
While this is a fall from the price peak observed in December (5.83% in London, 7.08% in New York), it still represents an enormous increase from a year ago. Compared to last year, cocoa prices have surged by 149.7% in London and by 159% in New York.
Restrictions on cocoa delivery and robust demand are driving the price increase while main players move to secure cocoa supplies. In line with these trends, cocoa inventories continue to decline. Last Thursday, the total bags reported by ICE Futures US licensed warehouses reached their lowest point in 21 years. On January 21, cocoa inventories increased by 0.06% to 1,293,075 bags. Inventories remain nearly 69% below last year’s levels.
Unfavorable
weather conditions threaten availability
Amid West Africa’s dry
season, production and export forecasts predict a cocoa deficit for the fourth
consecutive year, further driving up prices.Main cacao-producing regions are not receiving
enough rain, which is needed for flowers to develop successfully into cacao pods. Dry conditions result in flowers and pods withering, and the reduction of
the harvest productivity between April and September.
In the Ivory Coast farmers delivered 1.2 million tons to the ports this marketing year, 26% higher than the previous year. However, the dry weather conditions have raised concerns over production for the current harvest. This would imply a reduction in deliveries to ports and a decline in the global availability of cocoa, given Ivory Coast’s importance as largest producer and exporter.
Ivorian cocoa exports decreased by 17% from the previous year according to Reuters news agency. Moreover, reports indicate Ivorian buyers maintaining stocks beyond the two-week limit established by the Ivorian Coffee-Cacao Council (CCC), promoting a cocoa shortage and increasing prices for exporters.
In Ghana cocoa production has been on a downward trend since 2021, driven by climate change and plant diseases. With cocoa production falling to levels seen two decades ago, below 550,000 tons, Ghana has postponed the delivery of 370,000 tons of cocoa.
Grinding reports were published on January 16 by the European Cocoa Association (ECA), the Cocoa Association of Asia (CAA), and the US National Confectionery Association (NCA). All three associations reported a year-on-year decline in grindings for Q4.. The ECA, the CAA, and the NCA reported a decrease in cocoa grinding of 5.4%, 0.5%, and 1.2%, respectively. The high prices are taking a toll on the demand, as reflected in the decline in cacao bean grindings.
Large
companies securing large volumes
While the forecasts depict future problems for cocoa production, vigilance and
resilience are needed by players in the sector to navigate and adapt to these
complexities. Since the mid-December price peak, chocolate producers such
as Barry Callebaut have decreased their purchases of cacao beans regardless of
the high demand.
Lindt stated that they will increase the price of their products to tackle the increase in cocoa prices, transferring costs to final consumers. Lindt appears confident that their chocolate sales will likely be unaffected by increases in confectionery prices.
Other players in the sector, such as Cargill and Hershey’s, are moving to secure and get hold of the declining stocks. Last week, Hershey made a bid to purchase over 90,000 tons of cocoa.
Considering the challenges faced by cocoa producers, large players securing large volumes of cocoa and increasing prices could restrict cocoa provision for smaller chocolate producers.
Exploring
cocoa-free alternatives
Meanwhile, food-tech
startup Voyage Foods is exploring chocolate alternatives. The company
announced a partnership with Cargill last year for the
construction of a cocoa-free chocolate manufacturing facility. While focused on the production of
allergen-free foods, these developments can also decrease the reliance on cocoa
for chocolate production.