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It's not only Sonny the Cuckoo Bird, but traders these days cannot get enough chocolatey goodness. Supply shortages saw cocoa futures (CC1:COM) surge well past the $9,000 per ton level on Monday as a record rally that started in early 2023 shows no sign of letting up. In fact, cocoa beans are not only now more expensive than other popular commodities like copper, but recent returns also outpace popular investments like Nvidia (NVDA) and Bitcoin (BTC-USD) over the past month (+47%) and on a year-to-date basis (+130%).
Snapshot: Cocoa production has been dented by severe weather and crop disease in Ghana and the neighboring Ivory Coast, which together are responsible for 70% of global output. Farmers in Guana also sell their cocoa to the government under fixed contracts set at the beginning of the season, so smuggling is expected to take advantage of the higher prices. Problems surrounding forex reserves can also arise as the Ghana Cocoa Board - known as Cocobod - stands to lose access to a key funding facility due to a shortage of beans, which will further restrict seedlings and fertilizers to farmers.
"Adding complexity is the EU's upcoming deforestation regulation that could limit output if farms don't comply," writes SA analyst Weather Wealth, stating that investors should avoid these three stocks as cocoa prices soar. Comments on the same article warn that the run-up could also be attributed to speculation, similar to "European gas after the war in Ukraine" and "thanks to the illiquidity of the contract and the lack of sellers." "Here it seems the replay of that movie," remarks Mktneutralhedger. "We know how it will end, but when?"
What to watch: Spending on candy and chocolates will drop this Easter, according to the National Retail Federation, as manufacturers pass on rising costs to consumers. Meanwhile, companies could continue cutting down on packaging and bar sizes, or promote varieties with other ingredients. There's already an explosion of cocoa butter equivalents on the market, as well as substitutes for cocoa mass and artificial flavors, and expect some clever marketing in the near future like "I Can't Believe It's Not Chocolate!"
More on cocoa and commodities
- Commodity Roundup: Cocoa prices extend gains after surpassing $9,000 on supply woes
- Astonishingly High Cocoa Prices Set To Continue As Deficit Concerns Grow
- Goldman stays bullish on commodities in anticipation of rate cuts
- Halloween scare? Consumers watch as cocoa futures hit 44-year high
- Consumers start to push back on high prices for chocolate products