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Cocoa Prices Rising: Understanding the Global Market Shifts

Cocoa Prices Rising: Understanding the Global Market Shifts

From all of us at Luker Chocolate, we understand that these are exceptionally challenging times for everyone involved in the cocoa industry. As you navigate through the complex landscape of rising cocoa prices and regulatory changes, we are here to help you understand these significant shifts and the historical context behind them. If you have any questions or concerns, please don't hesitate to reach out to us. We're committed to supporting you through these times.

 

What's happening to global cocoa prices?

 Over the last six months, cocoa prices have skyrocketed, rising from USD 4,275 to reaching historical highs of $11,206 per metric ton in April 2024, reflecting an increase of more than 100%.

But you must be wondering, why is this? And how does this impact the industry? Through this blog, we want to show you the notable shifts in cocoa market prices. Factors such as the El Niño phenomenon,  an offer decrease, and supply chain disruptions have contributed to rising costs.

 

Why are cocoa prices rising?

These are the main reasons:

  1. El Niño phenomenon and crop diseases

The high temperatures and lack of humidity have reduced the harvest in Ivory Coast and Ghana, the two leading world producers, representing around 80% of the world's cocoa output. 

"Since the start of the season, arrivals at Ivorian and Ghanian ports have been down 28% and 35% from the same period last season," according to a February ICCO (International Cocoa Organization) report. 

This, coupled with crop diseases from swollen outbreaks, has decreased Ivory Coast production by 35%, while Ghana reduced its estimate for 2023/24 by 40%, the lowest level in 14 years.

"As these two leading producing countries supply about two-thirds of global cocoa beans, any change in their production tends to have a significant impact on the cocoa market," the ICCO said.

  1. Global cocoa shortage

Since 2023, the world has been experiencing a shortfall in cocoa supply. The International Cocoa Organization (ICCO) has reported that the available global cocoa reserves are at their lowest in seven years. They project that the production of cocoa will decrease by 10.9%, landing at 4.45 million metric tons for the current season.

However, amidst these shortages, the resilience shown in the first quarter of 2024 cocoa grinding data is notably significant. Despite global supply challenges, the results from Europe, North America, and Asia were better than anticipated. North America, in particular, recorded a 3.66% increase in grinding volumes, contrary to expected declines. This robust performance underscores strong demand and suggests additional pressure on already limited cocoa supplies. Reflecting this demand, cocoa prices surged, hitting USD 12,256 for the May 2024 contract.

The interaction between decreased production and consistent or rising grinding volumes emphasizes considerable market pressures and highlights the critical need to closely watch both supply and demand trends in the cocoa industry. 

  1. Investor Speculation  

Investor speculation is making the cocoa market even more complicated by driving up prices. According to a report by J.P. Morgan from April 3, 2024, what started as a supply issue, worsened by dry weather, has now escalated due to investors buying up cocoa. They mention that non-commercial investors, who are not part of the cocoa industry, control over 60% of cocoa investments in New York, which is an all-time high. However, they now hold 18% of these investments, indicating they have reduced their positions recently.

The Impact of EU Regulation on Deforestation-free Products (EUDR)

The EU Regulation on Deforestation-free Products (EUDR) designed to combat deforestation could potentially impact the market. These regulations require cocoa-producing countries to implement comprehensive due diligence processes, including traceability systems, data collection, verification of producers, assessments of deforestation risks, and active monitoring of deforestation and human rights enforcement. The long-term effects of these measures on the cocoa supply remain uncertain as the industry adjusts to these new compliance and monitoring requirements.

 

What's Luker Chocolate doing about it?

The escalating prices of cocoa have created an abnormal situation, exerting pressure on various sectors within the industry. In this challenging period of uncertainty, particularly for a hard-to-grow category, it is crucial to extend support to our clients. At Luker, our commitment to shared values becomes paramount as we navigate through these challenges together.

In line with our goal to improve the well-being of cocoa growing families in Colombia, we will continue to work towards maximizing market price transfer to farmers. This inevitably puts a strain on chocolate prices in the near and mid future as sourcing costs continue to rise. In this sense we have focused on creating added value for our customers through product development, personal service and communication, which will help them to give a more differentiated offer to their consumers as well.

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