Worldwide Drivers of the Current Staggering Cocoa Prices

The surging prices of cocoa have captured a lot of attention in the past months. But only a few know what drives this mouthwatering commodity to eye watering prices. Cocoa yields have been under pressure for the last few years, making 2024 the 3^rd consecutive year in a row with a reducing world production. The demand however showed a completely different pattern. Over the last decennia a larger extent of the world population has been able to afford a “cheap” luxury such as chocolate.

Cocoa Farm Gate Pricing

Ghana and Ivory Coast, collectively account for more than 60% of the global cocoa production. However, cocoa farmers in these regions face significant challenges, particularly concerning farm gate prices. This article delves into the complexities surrounding farm gate prices and sheds light on the issues faced by cocoa farmers in Ghana and Ivory Coast.

Farm gate prices are set at the beginning of the Main Crop Season (Oct or Nov). These prices are crucial for cocoa farmers as they directly impact their livelihoods, influencing their standard of living, farm investments, and financial sustainability.

Ghana and Ivory Coast are grappling with various issues affecting farm gate prices. While global cocoa prices soar, cocoa farmers in Ghana struggle to benefit from these increases due to middlemen and complex distribution chains that farmers are a part of.

Another pressing concern is the aging cocoa tree population in Ghana, which significantly affects productivity. Many cocoa trees are old and in need of replanting, but at current farm gate prices it does not reward the farmer to invest. This, in turn, affects their bargaining power and ability to negotiate fair farm gate prices. Clearly a circle that can only be broken by fair pricing and open supply chains.

Commodity Prices Based on Futures

Price discovery in the cocoa industry is led by the futures market, a digital market place where origin shippers, traders and producers of chocolate agree to prices and deliveries in the future. Fluctuations in supply or demand will be reflected in the price so that buyers and sellers find the correct price to settle. The consecutive reduced global production and the growing appetite for cocoa put prices under pressure. The futures market does not solely consist of cocoa sellers and buyers. It also includes speculators such as investment funds; these funds have little to do with the physical side of cocoa trading but sometimes choose to take part in the cocoa market by trading cocoa futures.

The increasing prices of cocoa attracted funds to step into the cocoa market. This caused the market to blow up to the point that prices seemed unreasonable or became unattainable for those who buy cocoa beans or cocoa products to actually make chocolate.

However it’s not all bad what the funds are doing. Such entities create a lot of liquidity which allow cocoa traders to easily navigate through the market and buy or sell whenever is necessary to buy and sell.

Cocoa Price Development in 2024

The first quarter of 2024 was extreme with a price hick that tripped the cocoa prices in two months. Initially started by the lack of supply and driven up by speculative funds that pushed the market to historically high prices. In April and May 2024 the market corrected and fell with 3000 GBP/MT. At this stage we saw that there were less funds active in the market which caused the market to be illiquid. With only a few entities buying and selling, the market became ‘scattered’. In these months the price of cocoa would fluctuate 5% up or down on a daily basis. Prior to 2024, this situation was unheard of in the cocoa trade.

The Beginning of a New Era in Cocoa Pricing

In summary, the high prices we see in cocoa are driven by a complex interplay of supply constraints, rising demand, and market dynamics involving both producers and speculators. The consistent decline in cocoa production over the past three years has created a supply shortfall, while the growing global demand for chocolate has simultaneously driven up. This imbalance has been further exacerbated by challenges faced by cocoa farmers in key producing countries like Ghana and Ivory Coast, due to the farm gate prices and aging cocoa trees.

Additionally, the futures market, which is pivotal in price discovery, has seen significant speculative activity. While these speculators provide essential liquidity, their influence has also contributed to dramatic price swings, leading to historical highs.

Do you need more information about cocoa pricing?

At Daarnhouwer, we’re experts in market trends, especially when it comes to cocoa prices, which have been all over the place lately. Today’s prices might be totally different tomorrow. So, the information we provide now might not be relevant later. If you want the latest pricing updates, just reach out to our specialist, Mathias:

Email: cocoa@daarnhouwer.nl