Source: Zhitong Finance

The price of cocoa futures soared to an unprecedented level of more than 10,000 US dollars per ton, continuing the historic increase that had already doubled this year, which also boosted the cost of chocolate.

Cocoa rose 3.5% to $9991 in New York on Tuesday. In other markets, raw sugar rose 1%, while Arabica coffee rose slightly. In London, the price of the most active cocoa futures has also more than doubled this year.

Poor harvests from major farmers in West Africa have made markets uneasy, causing global food supply shortages for the third year in a row. The industry is struggling to resolve the legacy of low returns for cocoa farmers, and the market is increasingly worried about getting enough cocoa beans.

In addition to concerns about the shortage of physical supplies, the pressure on financial markets is also increasing, and some traders are already selling futures to hedge against physical positions. However, in the process of waiting for the contract to expire, they need cash to pay additional security for losses on derivatives, and if the market rises, they may be forced to close their positions, which helps drive the price of cocoa futures higher.

On Tuesday, the price of New York cocoa futures rose 4.5% to $1,080. This level seemed unimaginable a few months ago. For most of the past few months, this rise has pushed a technical price indicator into the overbought range, but cocoa prices have continued to soar.

Paul Joules, an analyst at Rabobank in London, said: “When we're at this price, it's hard to tell if these prices are reasonable.” “Whenever the market falls, it seems like it directly rebounds, which is more about chocolate producers, who have always been net buyers.”

If chocolate producers continue to pass on costs or continue to sell smaller chocolate bars with less chocolate content, then rising cocoa prices are bad news for consumers. The upcoming Easter holiday is a peak period for chocolate consumption, and the lag between commodities and retail markets means that the impact on shoppers will still be the first.

The supply situation is likely to deteriorate. The EU's upcoming regulations — aimed at stopping deforest-damaging products from being sold in stores — could make it harder for EU chocolate makers to get supplies.

harvest season

The focus now turns to the upcoming mid-season crop in West Africa, which is the smaller of two harvests per year. Regulators in Côte d'Ivoire, the largest producer, expect this production to decline this quarter.

The Hightower report said in a report: “The supply situation in West Africa remains very tight until the harvest begins in the middle of next week, which will continue to support cocoa prices.”

Other growing countries, such as Brazil and Ecuador, are seeking to increase production, but newly planted cocoa trees will take several years to produce cocoa beans, which has delayed easing global supply constraints. The International Cocoa Organization predicts that the ratio of inventory to grinding will fall to its lowest level in more than 40 years this quarter, reflecting the unstable state of the market.