Cocoa prices continue to surge, reaching a new record in New York, raising concerns about supply shortages. The rising prices are expected to impact the cost of producing confectionery in the lead-up to Easter, affecting chocolate lovers worldwide. Futures climbed by as much as 5% yesterday, following the largest weekly jump since 1999. The price increase is attributed to drought and disease damaging crops in key west African cocoa producers, which could lead to higher costs for chocolate manufacturers. Cocoa prices have already doubled over the past year.
There are signs of tightening supplies from major exporters, with bean arrivals in Ivory Coast running about a third behind last year’s pace and Nigerian exports declining in January. This has raised concerns about the availability of cocoa to meet existing sales obligations. Chocolate makers may be forced to enter the futures market to secure supplies. The recent surge in cocoa prices is not driven by money managers, as funds have been net sellers of their long positions. Market participants cutting short positions and covering hedges may be responsible for the buying.
The increase in cocoa prices is likely to result in higher costs for consumers leading up to Easter, a time when global demand for chocolate surges. Cadbury, the maker of popular chocolates, has already indicated plans for additional price hikes to offset the surge in cocoa prices. However, shoppers are cutting back more than they did last year, as disclosed by Cadbury and Hershey maker Mondelez in recent quarterly earnings calls. This has negatively impacted their sales outlooks. Hershey CEO Michele Buck stated that pricing would be used as a tool to manage the business given the current cocoa prices.
In conclusion, the latest surge in world cocoa prices is expected to have a significant impact on the cost of chocolate production and may result in higher prices for consumers in the lead-up to Easter.
