​​​Cocoa prices reach record highs on supply shortages and speculation

​​​Cocoa prices rose 70% in 2023 and have doubled year-to-date

​Cocoa prices have skyrocketed over the past two years due to poor weather and disease impacting crops in top producing countries like Ivory Coast and Ghana. Prices remained relatively stable from 2017-2022 but then increased 70% in 2023 and doubled so far in 2024 to reach record highs. This price surge is squeezing chocolate manufacturers and causing chocolate prices to rise sharply ahead of Easter, concerning consumers.

​The recent cocoa supply shortages stem from several years of unfavourable growing conditions in western Africa, which produces about three-quarters of the world’s cocoa. In 2023, heavy rains accelerated the spread of black pod rot disease and swollen shoot virus, two common cocoa diseases. Additionally, the harsh Harmattan winds from the Sahara dried out pods. These issues decimated yields.

​2024 brought more troubles for cocoa farmers. Drought conditions have further reduced the cocoa crop, with output from Ivory Coast and Ghana falling 30%. Some processing plants have halted operations entirely due to lack of beans. And with cocoa production dominated by small family farms rather than large corporate operations, farmers have limited resources to cope with climate fluctuations and disease.

​Meanwhile, global demand for chocolate continues rising steadily, exacerbating the supply issues. Market analysts predict the supply gap will persist as weather models show drier than normal conditions continuing for the next six months in western Africa.

​In response to tightening supplies, cocoa prices nearly reached $7,000 per metric ton in March 2024. For context, prices averaged around $2,500 in 2023 and $1,700 in 2022. Chocolate manufacturers are passing higher costs onto consumers, with popular Easter chocolates seeing double-digit price hikes this year. Some analysts speculate prices may rise as much as 30% by next Easter if crops do not rebound.

​Besides supply and demand factors, speculation is also driving extraordinary cocoa price increases. As prices mounted in early 2024, hedge funds and other financial players increasingly invested in cocoa futures contracts, betting prices would rise further. Their significant buying activity created a feedback loop, sending prices still higher despite little change in market fundamentals. Some experts believe speculators have inflated prices beyond levels justified by supply shortages alone.

​With prices sky-high, industry groups are pressuring governments to take action to stabilize cocoa prices and ensure adequate supply. Ideas floated include stockpiling beans, providing aid packages to west African farmers, investing in disease-resistant cocoa varieties, and exploring whether suitable growing conditions exist in other countries. Absent such efforts, chocolate shortages could become a real possibility while manufacturers continue struggling with extraordinary input costs.

​Technical analysis on the London Cocoa front month futures contract

​The rise in the front month London cocoa futures price is exponential and has taken it to 6,995 in March, having seen a fast acceleration in February and March.

​Monthly London Cocoa front month futures contract

​Were the minor psychological 7,000 mark to be bettered, the psychological 8,000 mark would be next in line.

​Since this week’s all-time record high at 6,995 hasn’t been accompanied by a higher high on the daily relative strength index (RSI), negative divergence can be seen. It indicates that the current rate of ascent is not sustainable and that at least in the short-term a retracement lower may soon take shape.

​While the late-February and early-March lows at 5,500 to 5,363 underpin, though, the medium-term uptrend remains valid.

​Daily London Cocoa front month futures contract