Climate change is a growing problem

Cocoa plants thrive best in the equatorial region, where the weather is warm and humid. That is why up to 70 % of world production comes from West African countries, namely Côte d'Ivoire, Ghana and Cameroon. Although countries in South and Latin America or South-East Asia also contribute to this market, their share is incomparably smaller. The impact of climate change on these regions has been enormous in recent years and extreme weather fluctuations have plagued local growers for several seasons. Moreover, in the main growing season, which lasts from October to March, the Harmattan winds blowing in from the Sahara arrive regularly. They bring with them Saharan sand and even more drought, with devastating effects on the crops.[1] In addition to the drought, heavy rains are also a problem, and higher mortality of cocoa beans has been reported. In addition, many fields in Côte d'Ivoire have faced flooding. These factors have led to the harvest so far showing signs of inferior quality. Although Côte d'Ivoire or Nigeria have produced more cocoa year-on-year in the last two months, the prospect of a poor harvest next year keeps prices high.[2]

Global cocoa deficit causes steep price rise

The price of cocoa is already reaching historic highs. The March 2025 futures contract traded on the New York Mercantile Exchange (NYMEX) was close to the USD 12 thousand per tonne mark on Tuesday, 17 December 2024.* Prices are already almost triple compared to the same period last year.* The International Cocoa Organization (ICCO) published updated stock estimates in November. According to it, production in the current 2023/24 season is expected to fall by 13.1% to 4.38 million tonnes. The global deficit is estimated at 478 thousand tonnes, the highest figure in more than 60 years. Meanwhile, weather forecasts do not yet indicate an improvement in growing conditions in the near term.[3][4]

Price evolution of the futures contract for cocoa for delivery in March 2025 over the last 5 years. (Source: investing.com)*

Chocolate lovers also suffer from high prices

On the other hand, demand for cocoa products is not slowing down. Especially in the run-up to Christmas, chocolate manufacturers are counting on higher demand. At the same time, the sharp rise in the price of cocoa increases their costs, which they have to reflect in their shelf prices. According to the latest Eurostat figures from October 2024, the average price of chocolate in the European Union has risen by 9% year-on-year. Such price rises may discourage customers, who are also affected by the economic crisis, and ultimately lead to a drop in sales. Manufacturers are addressing this problem by reducing the weight of their packages or by adding various other ingredients to reduce the proportion of cocoa in the product. They then do not have to increase prices too steeply. Based on current weather forecasts and the state of the West African harvest, prices for chocolate products are expected to increase by a further 10 to 15 % in 2025.[1]

Cocoa stocks will not be sufficient even next season

Although cocoa production in West Africa is expected to increase next season, it will not be enough to meet global demand. Moreover, the risk of adverse weather has not disappeared. Therefore, the price of the crop is expected to remain at its historical highs. Coffee has also seen price increases, with Brazil being the main growing region. The price of the benchmark Arabica coffee futures contract maturing in March 2025 is close to its record highs.* The reasons are the same as for cocoa - extremely dry weather. Although price increases are uncomfortable for consumers, they can be attractive for investors. However, their volatility poses a major risk.[2]

Price evolution of the Arabica coffee futures contract for delivery in March 2025 over the last 5 years. (Source: investing.com)*

Adam Austera, Principal Analyst at Ozios

* Past performance is no guarantee of future results

[1] https://ec.europa.eu/eurostat/databrowser/view/prc_hicp_manr__custom_11894412/bookmark/table?lang=en&bookmarkId=47c53081-c2b3-4132-9f27-12cd0599372a

[2] https://www.cnbc.com/2024/12/17/cocoa-prices-rally-to-record-high-prompting-fresh-volatility-warnings.html

[1] https://www.investing.com/news/commodities-news/cocoa-futures-soar-to-7month-peak-amid-west-africa-woes-93CH-3761466

[2] https://www.theglobeandmail.com/investing/markets/commodities/SWK27/pressreleases/30075476/cocoa-prices-finish-sharply-higher-as-west-african-crop-outlook-worsens/

[3] https://www.icco.org/november-2024-quarterly-bulletin-of-cocoa-statistics/

[4] https://www.cnbc.com/2024/12/17/cocoa-prices-rally-to-record-high-prompting-fresh-volatility-warnings.html