(Bloomberg) — Cocoa futures prices hit an unprecedented $10,000 per tonne, extending a historic rally that has already doubled prices this year and pushed chocolate prices higher.
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Harvest failures by major producers in West Africa have disrupted markets, with the world expected to face a third consecutive year of shortages. The industry is grappling with a legacy of low returns paid to cocoa farmers, raising concerns about whether it will be able to source enough beans.
In addition to concerns about a shortage of physical supplies, pressure is also building in financial markets, with some traders selling futures to hedge their physical holdings. However, while waiting for the contract to mature, you will need cash to meet margin calls for losses on the derivative, and you may be forced to unwind your short position if the market is rising, which could lead to an increase in This may be a factor in accelerating the
Futures rose as much as 4.5% to $10,080 per tonne in New York on Tuesday. This is a level that was unimaginable just a few months ago. Cocoa continues to soar, but this rally has pushed price technical indicators into overbought territory for much of the past few months.
“At these prices, it’s hard to say whether this price is justified or not,” said Paul Jules, an analyst at Rabobank in London. “Even when the market goes down, it seems to go up quickly. This has more to do with commercials, and they were net buyers.”
Read more: Chocoholics aren’t the only victims of the cocoa boom: Javier Blas
Analysts at Hightower Reports said in a note Tuesday that the price movement has been “so sharp that traders may be concerned that the bull market has dried up,” leading to a decline in the $10,000. He said that there is a possibility of profit-taking selling if the price reaches this level.
There is a risk that the supply situation will worsen. The European Union’s upcoming rules aimed at stopping deforestation products from being sold in stores could make it even harder for the region’s chocolate makers to secure supplies.
new harvest
The focus now shifts to West Africa’s upcoming intermediate crop (the smaller of the two annual harvests). Regulators in top producer Ivory Coast expect production to shrink this season, Bloomberg reported.
“Supply conditions in West Africa remain extremely tight as we head into the mid-harvest start of the crop next week,” Hightower Reports said in a note.
Other producers such as Brazil and Ecuador are also aiming to increase production, but newly planted cacao trees take years to bear beans, slowing the easing of global supply constraints. The International Cocoa Organization predicts that this season’s stockpile-to-milling ratio will fall to its lowest level in more than 40 years, reflecting the precarious position of the market.
As of 10:18 a.m. in New York, cocoa was trading 0.8% higher at $9,725, more than doubling since the beginning of January. Cocoa futures prices, the most active in London, have also more than doubled this year. Shares of chocolate makers such as Hershey, Rocky Mountain Chocolate Factory and Mondelēz International fell slightly.
Rising cocoa costs are squeezing chocolate makers’ profits, and if companies continue to pass on costs or sell products that are smaller or contain less chocolate, cocoa’s progress will be lost to consumers. This is very bad news. The upcoming Easter holiday is peak time for candy consumption, and the time difference between commodity and retail markets means the brunt of the impact on shoppers is yet to come.
–With assistance from Ilena Peng and Dayanne Sousa.
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