Cocoa prices skyrocket to unprecedented highs amid global supply concerns

World cocoa prices reached historic highs on Thursday as traders scrambled to secure supplies, anticipating widening deficits for the ongoing season and expressing growing concerns for the future.

According to a Reuters report, this surge has not only impacted the commodity market but is also trickling down to affect major players in the chocolate industry, with Hershey forecasting a slowdown in demand from cost-conscious consumers, following a 6.6 per cent drop in sales volumes in the fourth quarter.

The chocolate giant's shares, down approximately 30 per cent since May 2023, also revealed expectations of reduced earnings growth due to the soaring cocoa prices.

The repercussions of the escalating cocoa prices are evident on retail shelves, where Hershey is bracing for a further dip in demand.

The aftermath of its fourth-quarter performance, coupled with the anticipation of a challenging year ahead, led the company to project limitations on its earnings growth.

Rival chocolate manufacturer, Mondelez, also experienced a decline in volumes during the last quarter.

Meteorologist and commodity trading advisor at Best Weather Inc., Jim Roemer, expressed his concern about the current cocoa market situation.

"Going back 47 years, almost every major price blip was followed by a massive 20-50 per cent price break, within one to two years. Is this situation different? According to my sources in the cocoa bush of West Africa...yes," Reuters quoted him as saying.

Roemer, citing damage to the cocoa crop from strong Harmattan winds in West Africa, suggested that the squeeze on cocoa prices might persist for another month or two.

The benchmark ICE London cocoa futures soared to 4,577 pounds per metric ton, experiencing a 4.7 per cent increase to 4,546 pounds by 1246 GMT.

Meanwhile, New York's benchmark ICE cocoa futures hit a new peak at $5,625 per ton, reflecting a 3.6 per cent surge at $5,602.

These prices have approximately doubled since the beginning of the previous year.

Reports from No. 2 cocoa producer Ghana indicate a significant decline in output for the current 2023-24 season, ranging between 475,000-500,000 tons compared to 655,000 tons the previous year. T

his aligns with a recent Reuters cocoa poll projecting a global deficit of 375,000 tons in the 2023/24 season, more than double the previous poll in August.

Experts fear that the shortage may extend into the next year, prompting concerns about filling the void with beans from subsequent crops if the current season's yields remain insufficient.

Traders and experts are contemplating the possibility of a prolonged shortage, questioning the consequences if the next season's cocoa crop faces similar challenges.

This unprecedented situation is not only impacting chocolate manufacturers but also sending ripples throughout the wider commodity market, affecting soft commodities like sugar and coffee.

In the realm of other soft commodities, raw sugar experienced a 0.5 per cent slip to 23.77 cents per lb, while white sugar witnessed a 0.3 per cent rise to $658.20 per ton.

Arabica coffee saw a 0.5 per cent decline to $1.8705 per lb, and Robusta remained relatively stable at $3,114 per ton, providing a broader context of the challenges facing the global soft commodity market.

(With inputs from Reuters)