Cocoa Hits New Record in Blow to Chocolate Makers and Consumers
Cocoa futures reached a fresh record in New York as the market grapples with renewed supply concerns, increasing the chances that the high costs already plaguing chocolatiers and consumers will worsen.
Futures rose as much as 4.8% to $11,839 a ton on Monday. They have almost tripled this year, forcing candy makers like Hershey Co. to boost prices.
Prices soared earlier this year as weak harvests in West Africa — the top producing region — plunged the world into a third straight supply deficit. After cooling, the rally recently regained momentum as adverse weather further threatened farms there, limiting the chance to rebuild already low global stockpiles.
While the main-crop harvest for this season has fared relatively well, the outlook for the smaller mid-crop has deteriorated following heavy rains that flooded farms, and now the seasonally dry Harmattan winds that can dry soil and stress crops are intensifying.
US exchange inventories have continued to drop, reflecting continued supply tightness after a massive deficit in the prior season left chocolate companies draining stockpiles. That has helped turn hedge funds more bullish on prices in both New York and London recently.
Traders have also faced mounting costs to maintain positions, which forced a wave of bets to be closed out. Aggregate open interest fell to a decade-low in November, and the thinning liquidity could continue to exacerbate market volatility ahead.
Cocoa’s supply challenges have been compounded by longstanding industry problems, including crop disease and a legacy of low farmer pay. Newly planted trees also take a few years to bear pods, delaying a meaningful production rebound.
Futures were up 3.7% at $11,712 a ton in New York, building on last week’s 15% jump. The advance has pushed cocoa’s 14-day relative-strength index well above 70, a sign that the market may have become overbought.
Prices are likely to ease next year as the rally encourages more production and curbs consumption, Rabobank said recently.
