Cocoa futures have surged to an unprecedented level above $10,000 per ton in New York, extending a historic wave of price increases that have already doubled prices this year, raising the cost of chocolate. The cocoa market has been gripped by panic due to weak harvests from major West African farmers, putting the world on track for a global supply shortage for the third consecutive year. The industry faces challenges due to the legacy of low returns paid to cocoa farmers, and concerns are mounting about the ability to secure enough cocoa beans.
In addition to worries about actual supply shortages, financial market pressures are also increasing, as some traders have sold futures to hedge against their physical holdings. However, while waiting for the futures to mature, they need liquidity to meet margin calls on losses in financial derivatives, and in a rising market, they may be forced to close short positions, further fueling the rise.
Futures jumped by as much as 4.5 percent to reach $10,080 in New York on Tuesday, a level that seemed unfathomable just a few months ago. A technical price index, a gauge used by traders to determine overbought levels, has entered the overbought territory for most of the past two months, despite the continued rise in cocoa prices.
Rising cocoa prices are bad news for consumers, as chocolate makers may pass on costs to consumers or sell smaller chocolate bars or those containing less cocoa. The upcoming Easter holiday is a peak chocolate consumption period, and the time lag between commodity markets and retail markets means that the full impact on shoppers still lies ahead.
There are concerns that the supply situation may worsen, as new EU rules designed to prevent the sale of products that destroy forests in stores could make it more difficult for chocolate makers in the European bloc to secure supplies.
