Cocoa looks to be the biggest gainer among major commodities this year, even outpacing the rise in the U.S. stock market and bitcoin, with prices for chocolate’s main ingredient having more than doubled in 2024 to reach a fresh record high this month.
And the rally shows little signs of ending, with cocoa‘s 2023-’24 marketing year having ended with the biggest global supply deficit in 60 years, according to ING .
Cocoa for March delivery CC00 CCH25 settled at $11,954 per metric ton on Friday to tally a year-to-date rise of nearly 185%, according to Dow Jones Market Data.
Based on preliminary Friday readings, gains of nearly 128% for bitcoin BTCUSD and almost 25% for the S&P 500 SPX this year pale in comparison.
The story for cocoa hasn’t changed much from earlier in the year , with adverse weather in the Cote d’Ivoire in West Africa still the key factor, said Darin Newsom, senior market analyst at Barchart.
Read archived story: Cocoa prices hit another record, sweetening a broad rally for commodities
Taking a look at the futures contracts, the forward curve for cocoa shows the backwardation, where nearby futures contracts are priced higher than deferred contracts, continues to strengthen, said Newsom. That indicates concern is growing over long-term supply and demand, he said.
As long as weather remains an issue, Newsom said he’s “expecting more investment money to move into the softs sector, including cocoa.”
Preliminary data on Friday showed that other “soft” commodities — those that are grown, not mined — are among 2024’s big gainers in the sector, with futures prices for frozen concentrated orange juice OJ00 up about 75% and coffee KC00 up almost 73%.
Weather ‘extremes’
Record warm oceans around the world have “worsened an already tenuous situation for West African cocoa crops hurt by 2 years of weather extremes,” said James Roemer, publisher of the WeatherWealth newsletter.
Wet October weather damaged cocoa trees again in parts of West Africa, and most recently there have been warm, dry Harmattan winds that usually do not occur from a weak La Niña, he said in a recent newsletter. “Harmattan” refers to dry winds that form over the Sahara, and La Niña is a climate pattern describing the cooling of surface-ocean water off the Pacific coast.
The winds will threaten the “mid crop” for cocoa, which is usually harvested in the spring, Roemer told MarketWatch this week. ”This will strain nearby supplies even further, but we are at historic high prices and the question becomes whether consumer demand will slacken off at some point.”
Earlier this year, cocoa saw a selloff from the April high through its October low, Barchart’s Newsom said — and that looks to be a “normal seasonal move” given that the harvest tends to begin in October. Once 2024 supplies started to come in, the market traded the “reality of a smaller crop, leading to new highs posted this month.”
Cocoa futures have gained almost 27% this month so far.
The International Cocoa Organization forecast a global cocoa production deficit of 478,000 metric tons for the 2023 to 2024 season, which ran to the end of September, according to a late November report . Year on year, it expects world production for the season to be down 13.1% and end-of-season stocks to fall by 26.8%.
Cocoa at record highs
Usually, weather returns to favorable for cocoa when La Niña forms, said Roemer. The U.S. National Oceanic and Atmospheric Administration said in mid-December that La Niña conditions were most likely to emerge from November of this year to January 2025.
However, a warming global climate and tight cocoa supplies have “painted a ‘cautiously’ friendly attitude in this market the last two months,” said Roemer, with cocoa prices trading near their record high.
Prices late reached an all-time intraday high of $12,931 on Dec. 18.
For now, that doesn’t appear to have led to a shift in consumer demand.
“We see this time and again in agricultural commodities — challenging weather hits production, yet demand remains robust,” Jake Hanley, managing director and senior portfolio specialist at Teucrium, told MarketWatch. “My family has already consumed our fair share of chocolate chip cookies this season, and there is no sign of slowing down!”
“Overall food inflation has picked up, nearing 2.4% in November after bottoming around 2% in August,” said Hanley. “Yet, like coffee, chocolate is one of those things consumers are reluctant to give up. Poster items for inelastic demand.”
Still, some may believe that a crash in cocoa prices might occur soon, following its big price rally. But continued weather issues in West Africa, combined with seasonal bullish tendencies, could still mean even higher prices, according to Roemer. At this time of year, cocoa prices tend to rally if supplies are tight ahead of the holidays, which see more chocolate purchases, he said.
“While profit-taking could occur at any time, there are so many fundamentals to follow in this market. Don’t step in front of a freight train,” said Roemer.
