Cocoa prices flirt with $10K as Easter looms

Cocoa prices extended a torrid rally, briefly setting a new record above $10,000 in a move that makes sweet treats pricier for consumers and chocolate makers alike.

Driving the news: A convergence of factors like production cuts, climate change and an ongoing economic turmoil in Ghana — one of the leading cocoa producing countries — are lighting a fire underneath spot prices.

• According to Reuters, major cocoa plants in Africa reduced processing because they couldn't afford to buy beans.
• The crisis is likely to intensify, with Ghana set to lose key funding access allowing it to buy beans, Bloomberg reported.

By the numbers: In the past six weeks, prices of wholesale beans traded in New York have doubled, trading just above $10k per metric on Tuesday before closing slightly below that level — a 250 percent jump from last year.

• At the time of writing, the cocoa price was around $9,700 per metric ton.

Deep dive: The cocoa crisis has been in the making for a long time, according to Tedd George, founder and chief narrative officer at Kleos Advisory. "We saw it coming and unfortunately, it's played out exactly as everyone said it would."

• Two-thirds of the world's cocoa comes from Côte d'Ivoire and Ghana. Yet frequent El Niño conditions last year set the world's top cocoa producers into a prolonged dry spell, impacting harvests and production.
• George says climate change and changing weather patterns turbo-charged the financial crisis in Ghana, threatening cocoa production.
• He says local Ghanaian farmers have been unable to restore old trees because it costs too much to buy pesticides; this in turn led to the spread of black pod disease and swollen shoot virus during the last quarter of 2023.
• This may lead to farmers resorting to smuggling beans to profit from higher prices, because many are currently locked into fixed contracts.

State of play: The Ivory Coast cocoa regulator, Le Conseil Cafe-Cacao, recently stopped selling contracts for cocoa exports forward sales for the 2024-25 season as production numbers drop.

• Reuters reports that in normal times, the heavily regulated market allows buyers to set pre-agreed prices a year in advance.

• However, in times of shortage, "the system breaks down" and dealers buy the beans at higher than the pre-agreed prices to secure the delivery.

What they're saying: "At the moment, both Ghana and Cote d'Ivoire are scrambling for beans to meet contracts some even from last season," says George. "That's where there's a real problem."

• To reduce the cost burden, some candy makers are replacing the ingredient, cutting down on packaging and bar sizes, or using new technologies to make cocoa-free chocolates.
• Adam Maxwell, whose food tech startup, Voyage Foods, has also reverse-engineered coffee and peanut butter to make said in an emailed statement:"While we can't say for certain, if you look at long-term historical cocoa pricing data, it's not crazy to think prices will be where they are today or even higher."

Yes, but: Approximately 92 percent of Easter-celebrating Americans are still set to purchase candy and chocolate this year, contributing to over $5 billion in confectionery sales during the Easter holiday season, according to the U.S. National Confectioners Association.

What we're watching: Whether chocolate remains affordable for everyone, or ends up becoming a luxury item.