Cocoa Market Poised for a Major Price Surge

Rising Cocoa Prices: What’s Behind the Surge?
Cocoa prices have fluctuated significantly in recent months, reaching $12,000 per tonne in April before dropping to $7,000 in May. However, experts warn this respite is short-lived. A structural supply-demand imbalance in cocoa production is set to drive prices higher, leaving chocolate makers grappling with increased costs.

Production Shortfalls in Key Regions
A major reason for the price surge is poor production in Ivory Coast and Ghana, which account for over 50% of global cocoa output. The 2023-24 season recorded a 500,000-tonne deficit, the largest ever. The El Niño weather pattern, followed by disappointing pod counts, has dashed hopes of recovery. The 2024-25 season is projected to face a further deficit of up to 200,000 tonnes.

Dwindling Cocoa Stocks
Visible cocoa reserves in Europe and the US have dropped drastically from 400,000 tonnes in late 2023 to just 100,000 tonnes, marking a record low. This sharp decline exacerbates concerns of a prolonged supply squeeze.

Structural Challenges Threaten Cocoa Production
Factors beyond weather contribute to the crisis:

• Deforestation Laws: Stricter regulations deter plantation expansion.
• Fertiliser Shortages: Global fertiliser availability has declined due to geopolitical tensions.
• Pests and Disease: The cocoa swollen shoot virus (CSSV) affects 67% of farms in West Africa, leading to significant tree loss.

Future Price Outlook
Cocoa's inelastic demand suggests prices may soar to inflation-adjusted highs, as seen in 1977 when prices hit $28,000 per tonne. With no immediate solutions and cocoa trees taking four years to mature, the market is bracing for sustained price increases.

As supply pressures mount, cocoa prices are likely to remain a central challenge for the chocolate industry.

Sources: (FT.com, ICCO)