There are those who compare it to bitcoin due to the speed with which its price is rising in the markets, but the reality is that cocoa is becoming more expensive at a much higher rate than the digital currency. Its revaluation reached unprecedented levels this Tuesday, surpassing the barrier of $10,000 per ton, or in other words, more than 130% so far in 2024, and four times more than a year and a half ago.
It is difficult to know to what extent this is a rise supported by rational reasons unrelated to the dynamics of financial speculation that sometimes surrounds raw materials. There are arguments to justify a price increase. Supply is being damaged by adverse weather events in the producing countries of West Africa, such as the heavy rains in December caused by El Niño and the extreme heat that followed, which are also responsible for the proliferation of diseases in large areas of crops.
There are also problems due to the effects of illegal mining, damaging the land that local farmers rent, even preventing cocoa production. The European law approved at the end of 2022 to prevent the import of products that promote deforestation, including cocoa, adds an extra obstacle, given that companies that exploit these products and want to market them in the community space must do so with a label. to verify that said goods have been produced on lands that have not suffered deforestation since December 31, 2020 .
But investment firms' trading screens may have some influence. In the era of globalized markets, pessimism about harvests is contributing to creating a snowball, by encouraging many investment funds to take positions to obtain capital gains under the logic that if there is less cocoa available, its price will rise, which has contributed to increasing its value in the futures market. Added to this is the closing of bearish positions, which were betting on the fall in the price of cocoa, to cut losses.
If it continues over time, the crisis, which comes at a time when inflationary pressures seem to relax in the main economies, and central banks are preparing to lower interest rates, threatens to increase what consumers pay for chocolate. . For now, it has already penalized the companies that market it. The shares of the American Hershey's, one of the best known, have fallen more than 20% in 12 months, despite the good moment that the stock markets are experiencing. Its rival Mondelez, which markets brands such as Milka and Oreo, is holding up somewhat better, and its titles are practically flat compared to a year ago. The Reuters agency reported this Tuesday that both these two companies and other manufacturers are launching more promotions for Easter sweets without chocolate.
The situation is reminiscent of what happened in 1977, during the biggest price crisis suffered so far by cocoa, although its magnitude was greater. Then its price exceeded $5,000, which if inflation is taken into account since then, would be equivalent to $27,000 today, almost three times more than what it is worth today.
The question hanging over the scene is how far the escalation can continue. A Citi report at the end of February already anticipated the possibility of the price reaching $10,000 per ton, although it contemplates a softening as the year progresses. “Our base case remains that cocoa prices will enter a bear market at the end of 2024,” the text says. Sights are set on Ivory Coast and Ghana, the largest producers with a combined share of more than 60% of the world market, which have revised downwards their prospects for this year.
“The gap between supply and demand in the market is widening daily,” says the analysis by HCCO, a consultancy specialized in cocoa and coffee trading based in Hamburg. “Yesterday [por el lunes] an impressive 27,000 calls were negotiated in London,” he says regarding the investment fever that cocoa is awakening.
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