Cocoa futures contracts have reached new highs, clouding the pricing outlook for chocolate confectionery manufacturers grappling with inflated costs.
Adverse weather in the key growing cocoa region of west Africa has pushed up prices of the commodity as the week gets underway, compounding a shortage of supply which is set for a third year of a stockpile deficit. Prices were already on an upward path in 2024 due to poor harvests in West Africa.
Contracts for March delivery on the ICE Futures exchange in New York were last trading at $11,875 a tonne, having almost tripled from around the $3,800-plus area at the start of the year.
Futures reached a record $11,925 a tonne in New York overnight, surpassing the previous high of $11,722 in April, according to Bloomberg.
The news agency explained that the outlook for the so-called mid-crop harvest, typically conducted in April, has ‘deteriorated’ due to rains and floods in West Africa.
Conditions have been compounded by the onslaught of the seasonal Harmattan dry wind pattern that blows across north-west Africa from November to March and could potentially disrupt supplies.
Marley Robinson, an analyst at Just Food’s parent company GlobalData, said prices are likely to “remain elevated” amid a combination of technical and fundamental factors, including potential crop disruption and Harmattan.
“This year’s deficit is due to heavy rain in West Africa earlier in the year which affected bean size and encouraged disease, as well as the current drier-than-usual weather,” Robinson said.
“Demand has not been massively impacted yet as the chocolate industry has so far successfully passed on higher cocoa costs.”
Costs for chocolate confectionery consumers have already risen this year amid stubbornly high cocoa prices, while inflationary pressures still weigh on household budgets, although not to the same extent as a year ago.
US giant Hershey outlined the pressures when it reported third-quarter results in November, before a report emerged that peer Mondelez International had launched a takeover bid for the Reese’s owner. That offer was rejected last week, although both companies declined to comment on the market speculation.
Michele Buck, Hershey’s president and CEO, said in November that the company’s year-to-date results had “been affected by historically high cocoa prices and a challenging consumer environment”.
Volumes suffered as Hershey report a “price realisation” for the quarter of around two percentage points, while group organic sales growth dipped 1%.
A month earlier, Mondelez had referenced the “volatility” in global commodity prices, including cocoa, when it reported third-quarter numbers in October.
For the cocoa season ahead, ING Group is quietly optimistic but with underlying weather-linked concerns.
Warren Patterson, the head of commodities strategy at the Dutch financial services group, said the global cocoa market registered a deficit of 478,000 metric tonnes in 2023/24, the largest in more than 60 years.
Writing in a December report, Patterson said: “This shortfall was driven by crop failures in West Africa, particularly Ivory Coast and Ghana. The deficit drove global cocoa stocks to the lowest level in more than a decade.
“While prospects for the 2024/25 marketing year are looking better, there are still concerns over weather developments in West Africa and what it could mean for output this season.
“Forecasts currently show that West African output - which accounts for more than 70% of global output - will edge higher. However, there are risks to this due to recent poor weather.”
