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Morning JAVA:  Cocoa Futures Hit Record $10K Per Ton

Morning JAVA: Cocoa Futures Hit Record $10K Per Ton


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Brace For Costlier Chocolate Bars

I first reported on February 6 that cocoa prices surged more than $1K since the start of the year. A year prior, prices hovered near $2.55K per ton. When I published that article, prices had surged to $5,189, doubling over in just 12 months. This morning, I got news that yesterday, cocoa shot up to $10K in the futures market, setting a new record. At time of writing, cocoa futures are hovering around $9.7K.

Chocolate lovers everywhere aren't going to be happy for the foreseeable future as we will surely see higher prices for all things chocolate or at the very least, some serious shrinkflation. It's got me thinking about those halloween bags of mini chocolate bars. You know, the bit sized ones? How much are those going to cost? All of this, just in time for the Easter Egg season.

It's shocking to see that cocoa prices went from about $4,100 in January to $10K. That's about a 140% increase in less than three months. prices have effectively quadrupled since the start of 2023. Fundamentals show it will rise even more. So what's causing this price surge?

Supply and demand, bad weather and aging crops, lack of support for farmers are all playing their part driving prices higher. Most of the world's cocoa comes from West Africa. Ghana's Cocoa Board (Cocobod) is expecting to produce only 425K Metric tons this year, half the initial forecast and a 22 year low. Ivory Cost, the world's largest producer, has seen a decline of 28% since October 1 and expect the next harvest to be less by about 33%. At their September fiscal year end, they expect an overall 21.5% drop in production for the entire year which would be an 8 year low. Nigeria also expects exports to drop by about 15%.

Bad weather, as in drought (El Nino) as well aging, diseased trees are a major problem as well as under-investment. Cocoa trees rake several years to mature before they start producing fruit. As the tress have gotten older, they are producing less. Even if diseased trees are replaced now, it will take years before production can ramp up again.

It doesn't look like they were continually planting new trees over the years. Now, they're paying the piper. We are too. Hopefully, they'll get to work to resolve that issue soon and re-invest while they still have a chance. Digging deeper, the farmers are poor and not earning much to re-invest. Those ultra / mega corporations that have made billions off the sweat of these farmers, I believe, are part of the problem. You'd think they'd be ahead of the game to prevent things like this from happening. Yes, they'll make a little profit for now but when a chocolate bar hits $2, then $3, sales will no doubt collapse.

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Inflation Bites!

When prices hit a new record high in February, it broke a 46 year old record of about $5.5K. That was back in the 1970s! Adjusting to inflation, that $5.5K becomes $27K in today's 'money'. With this in mind, I believe there's a chance we might see cocoa prices double over yet again. Crazy, I know... Just look at Bitcoin's price surge in the last several weeks (at $71K+ this morning) and gold hitting $2,220 last week. Nothing is out of the question at this point.

While supply is seeing a major crunch, demand has exploded. Due to a rise in the middle class around the world, demand for all things chocolate has doubled over in the last 30 years. It appears we are headed for a deficit this year of between 300K to 500K tons. If confirmed, it would be the largest deficit in 65 years! The futures market for cocoa is rising as a result as traders outbid each other for the next batch of available crops.

The shortfall of 2024 will mark 3 consecutive years of deficits with some saying is 'the most pronounced shortfall in modern history'. Yet, another sign is telling of more troubles ahead, liquidity! According to an article published on Zero Hedge this morning, there has been a notable 'decline in the financial cocoa market since January'. Open interest (outstanding contracts) in the London / New York cocoa futures market has dropped by a whopping 35% just in the last 3 months.

I guess that means there are less players bidding the price ever higher? Where did that 35% go? Did they give up? I hope this doesn't mean we're about to get flooded with fake chocolate. Oh wait, I forgot! We already have fake chocolate. It's called compound chocolate....

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SweptOverNiagara
SweptOverNiagara

Name's Joe and I live in Ontario, Canada. I like writing on a wide variety of topics. I enjoy keeping track of markets, investing and commodities and the crypto sector. Also do some coding for web browsers.


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