Paul Makube
The latest news on the cocoa market is that prices surged to a record high of US$9,733/ ton late in March 2024 and recently topped US10,051/ ton as inclement weather decimates yields in major production areas.
Consequently, the price of chocolate which is the most popular and the largest by-product from cocoa processing is rising. However, indications are that the upward price adjustment will be gradual given the magnitude of the increase at commodity level due to a need to avoid a potential demand shock. Further, consideration of consumer inflation, elevated interest rates, and subdued global economic growth are crucial in navigating pricing during these crucial times.
Domestically, the average price of a chocolate slab (80 Gram) was R22.48 in February 2024 which is up by 4.3% m/m and almost 17% higher y/y. Similarly, a chocolate bar cost on average R14.14 which is 7% higher y/y.
At commodity level, Ivory Coast cocoa shipments for the past six months were reported down by 28% y/y at 1.3 million tons. Ivory Coast’s 2023/24 cocoa production which ends in September 2024 is forecast to contract by a whopping 22% y/y to an 8-year low of 1.75 million tons according to the trader Ecom Agroindustrial. In Ghana, the 2023/24 cocoa harvest will reach a 22-year low of 422,500 tons to 425,000 tons largely due to the disease outbreaks and unfavourable weather conditions.
Globally, the International Cocoa Organization’s (ICO) first in forecasts for the 2023/24 cocoa year indicated that supply would fall by 11% y/y to 4.45 million tons. Surging cocoa prices will thus cut demand by 5% y/y to 4.78 million tons. However, the recent forecasts of a quick transition from the El Nino weather pattern to La Nina for the year ahead bodes well for a potential recovery in output in some of the producing areas.
This means we might see a price correction when the supply and demand comes back into balance next year. Hopefully, the elevated prices will encourage reinvestment in primary production to avoid huge fluctuations in supplies. And the consequent price response.
Nonetheless, a sustained upside in cocoa prices will not only hurt demand but also accelerate the shift to alternative products.
Paul Makube, Senior Agricultural Economist, FNB Commercial. He writes in his personal capacity.
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