Chocolate Easter Bunnies Are Safe From Rising Cocoa Prices
- Cocoa prices are up about 25% in 2018
- In December 2017, New York prices fell to 10-year lows
Cocoa is at its highest level in 16 months making it the strongest commodity in 2018. This is causing the global cocoa market’s dependence on West Africa to continue with Ivory Coast, the world’s biggest producer leading the way. Recently though, warm seasonal winds have dried out the soil in Ivory Coast. Is it time to suspend programs aimed at increasing production in the region?
Why This Matters: The cocoa market can be extremely volatile. In late 2016, cocoa futures plunged 27% in a six-week period. In December 2017, New York prices fell to 10-year lows after a year of pressure from record supply out of Ivory Coast. The main reason why programs geared towards suspending production increases aren’t a priority is due to the rising cocoa demand. Also, poor growing conditions in West Africa is perhaps another reason why prices are up about 25% this year.
There has been a major turnaround in 2018 causing prices to surge. The price of cocoa settled at £1,770 ($2,505) a metric ton in London and at $2,554 a metric ton in New York on Tuesday. “We’re looking likely to have a relatively insignificant surplus this season and all of the indicators are suggesting that demand is reasonably good and returning to long-term growth trends,” said Jonathan Parkman, head agricultural broker at Marex Spectron.
What’s Next: Going into the Easter holiday, the price of chocolate is unlikely to shoot up with cocoa. The bean is just one of the major ingredients in chocolate and confectioners buy their stocks months in advance to protect against volatility. The direction of cocoa-futures prices will likely be set by the next grinding figures, usually published in April. Grindings reflect the amount of raw cocoa processed into butter and powder for the manufacturing of confectionery and chocolate, and are often seen as a proxy for demand.
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