The milk cocoa shortage is causing a chocolate hell for traders

One man was blamed when cocoa prices reached the heights of this year. He is credited with causing the rise. Anthony Ward, the hedge fund trader nicknamed “chocfinger” after James Bond’s gold-hoarding villain Goldfinger made millions of dollars in 2010 by building up stockpiles.

In the last year, new traders have flooded the cocoa market, amplifying an acute shortage.

According to the London Stock Exchange Group’s data, cocoa prices reached a record high of £5,258 per tonne this month. This is more than twice the price at the same point last year.

This is the most dramatic rise in chocolate prices in the last 12 months. It will hit chocolate lovers hard in the wallet later this year.

The poor crop Ghana, Ivory Coast and other countries that together produce about 60% of the world’s cocoa has been blamed for many reasons, while the global demand for chocolate continues to increase. El Nino, a cyclical climate phenomenon, has led to hotter and dryer weather conditions in West Africa.

A disease outbreak has also caused problems for growers, and this is treated by removing trees and replanting them. Then, it takes five to seven years for a tree’s growth to reach the point where it can produce cocoa beans to be harvested. This is another obstacle to rapidly rebuilding stocks.

This season has been disappointing as a whole. This has likely meant that the global deficit is going to be much larger than before,” said Paul Joules a cocoa expert at Rabobank.

According to an analysis by the stock exchange group, the volume of cocoa exports from Ivory Coast has been 32 percent lower since October last. It is also 24 percent below the average for the past four years.

Even with improved weather conditions, increasing the supply on the market is still a challenge. “You’ve got a situation in which farmers have been underpaid for years for their crops and labour,” said Jon Walker. Senior cocoa advisor at Fairtrade International.

Millions of smallholder farmers, on whom cocoa production is dependent, face rising production costs and challenges in their daily lives. Walker explained that farmers are forced to make difficult decisions about whether they want to use fertilisers on their fields or put food on the dinner table.

Due to the regulated nature in Ghana and Ivory Coast, farmers haven’t benefited from the massive rise in cocoa price. Cocoa is harvested two times a year. The main harvest occurs in October, and the smaller one in April. In Ivory Coast, the government sets the “farmgate price” twice a calendar year ahead of harvests. The price in Ghana is only set once. Cocoa can also be sold in advance up to 12 months.

This means that the farmers receive a price set at a time when the cocoa market was more in line with the historical norm.

Analyst Joules said that as a result of this, farmers don’t get the kind of incentives to ramp up production and increase inputs such as fertilisers which could improve production in the near term.

The price of sugar and dairy products has also increased sharply. Chocolate makers have had to consider the balance of sales and profits more carefully.

Hershey’s chocolate, an American company, warned that rising cocoa prices could hurt its profitability in the coming yearr despite passing some of this pain on to consumers.

Mondelez International which produces Cadbury’s Chocolate has indicated that it will raise prices again this coming year. Luca Zaramella told analysts that the increase in prices this year would be “higher” than the average, even if inflation rates were lower.

According to NielsenIQ, the UK shop price for chocolate has increased by more than 16 percent annually to £12.57 per kilogram over the last 12 months.

Mondelez International – which produces Cadbury’s – has announced that prices will rise again in 2019.

Douglas Lamont is the chief executive officer of Tony’s Chocolonely. The high-end chocolate company said that the company has increased its prices by 7-8% globally in the last year, but still suffered a loss of profit.

He said, “We have to decide this year whether we want to do it again, pass on some of the cost to consumers, or pass it all to them.”

The government of Ivory Coast raised the farmgate price in April, and he expects that the increase in prices will be more apparent to the shoppers in September.

Chocolate makers have been able to protect themselves from rising prices by purchasing cocoa beans 12 months ahead. Joules warned that as supplies of cocoa beans diminish, the companies will be more vulnerable.

It’s important to keep in mind that we were at the heart of this crazy rally for much of 2023. He said that at that time, many chocolate companies had probably hedged their cocoa purchases for months.

Prices are unlikely to stabilize anytime soon due to the length and extent of the shortage. Three consecutive years have seen a cocoa shortage on the market. Experts believe that the April harvest will show how well cocoa prices have been anchored.

Joules stated, “We’ll get accurate crop predictions of the main crop for next season at that time.”

He added that it could also indicate whether the causes of the spike are more systemic or weather-related. The latter group is characterized by years of underinvestment, resulting in older trees that yield less and a growing trend for growers to switch to other commodities.

More speculators may flood the market if the barriers to recovery of supply are more deeply rooted.