Cocoa prices have soared to unprecedented levels, crossing $9,000 a ton due to a severe supply shortage, driven by poor harvests in West Africa, adverse weather, and crop diseases. The significant price increase, about 50% in a month and doubling within the year, is pushing the market towards the $10,000 mark, making cocoa more expensive than commodities like copper. This surge in cocoa prices is directly impacting the chocolate industry, leading to higher costs for chocolate products, including Easter eggs, which are already seeing price hikes.
The continuous rise in cocoa futures, despite being in overbought territory, indicates a strong market demand. Speculators have been withdrawing from the market, with a decrease in open interest and net-bullish positions, suggesting that the rally is primarily driven by actual buyers rather than speculative trading. This situation is exacerbated by concerns that new European Union regulations intended to prevent forest destruction could further strain cocoa supply chains, particularly affecting the EU's chocolate manufacturers.
The focus within the cocoa industry is shifting to the forthcoming mid-crop in West Africa, which is anticipated to be smaller this season. The Ivory Coast, the world's leading cocoa producer, expects a reduction in its mid-crop yield. This looming shortfall could further exacerbate the supply crunch, maintaining upward pressure on cocoa prices and potentially leading to even higher chocolate costs in the future.