Cocoa futures have had the best run of just about any asset class this year. Since the start of 2024, prices have climbed from around $4,200 to over $12,000, or more than +185%. That even beats Nvidia stock and Bitcoin! With global cocoa supplies at a 36-year low, poor outlooks for upcoming harvests, and consumers undeterred by sticker shock, some think cocoa prices could have further room to climb in 2025.
Cocoa’s record setting run started last year with poor harvests in West Africa that led to the largest-ever global cocoa supply deficit. West African nations – which includes leading producers Ivory Coast (Côte d’Ivoire) and Ghana – produce more than two-thirds of the world’s cocoa.
By the end of 2023, cocoa prices had crept up to around $4,200 in a market that has traded closer to the $2,500 mark for most of the past decade. Fast forward to April of this year (2024) and cocoa prices had topped $10,000. Most traders thought this was pretty “bubbly” at the time and driven in large part by speculators rather than the fundamental supply situation.
And in May, cocoa futures did take a steep dive that brought the contract all the way back to near $6,000. While the cocoa market remained extremely volatile, futures prices mostly stayed below $7,000 for the next six months as favorable weather fueled the outlook for upcoming harvests.
Then in November, the International Cocoa Organization (ICO) unexpectedly hiked its 2023/24 global cocoa deficit estimate to -478,000 MT from May’s -462,000 MT, the largest deficit in over 60 years. According to ICO, supply dropped -13% to 4.38 million metric tons globally in the twelve months to November.
For the 2023/24 season, ending stocks are estimated at 1.3 million tons. That would result in a stocks-to-grindings ratio of 27%, a 46-year lows.
Now, the current crops in Ivory Coast and Ghana, which account for more than 60% of global production, look to be in trouble following months of dry weather and an unfavorable outlook for conditions in the months ahead. In Ivory Coast, recent heavy rains led to reports of high mortality rates of cocoa buds on trees and raised concerns about disease risk and crop quality.
Meanwhile, more than 80% of growers in Ghana’s major production region are battling “swollen shoot disease.” Swollen shoot virus first reduces yields before killing trees, usually within a few years. Once infected, trees must be ripped out and the soil treated before cocoa can be replanted. Nearly 26% of Ghana’s cocoa growing land has been infected with swollen root disease. Ghana traditionally produces more than 800,000 tons of cocoa a year, but is expected to produce just over half that amount this season.
On the demand front, bean processing has been surprisingly strong so far this year despite skyrocketing prices for both chocolate manufacturers and consumers. The next quarterly figures due in January will give more clues on whether that has held up. If robust demand remains in tact, combined with tree diseases and lower output, market insiders warn that the cocoa market could be at risk of multiyear structural deficits.
Cocoa trees only start bearing beans after five years, but a warming climate brings along weather conditions and diseases that threaten the plants. To meet the ever-growing global demand, producers have begun planting a hybrid cocoa tree variety – CCN51 – which is said to be more profitable and yields more beans. Industry giants have been pushing producers to switch to CCN51 but it will be several more season before we know if it can help stabilize supplies. (Sources: Bloomberg, Luxembourg Times, Reuters)
