An agricultural raw material basket has reached a nine-year pinnacle, fueled by a meteoric rise in cocoa costs, stirring unease among chocolate connoisseurs worldwide.
The Invesco DB Agriculture Fund DBA surged to $24.09 per share on Friday, marking a year-to-date increase of over 15% and scaling peaks last touched in mid-January 2015.
Cocoa, contributing 21% to the DBA ETF, has skyrocketed by 112% this year, outshining stalwarts like Nvidia Corp. NVDA.
Cocoa futures breached nearly $9,000 per ton this week, setting an unprecedented record high.
Chart: Soaring Cocoa Prices Elevate Chocolate Bars Above AI GPUs
This remarkable surge is largely ascribed to persistent concerns surrounding scant supplies from West Africa, a pivotal hub for global cocoa production.
Disruptions in supplies engender a substantial disbalance in the global cocoa sector, as demand outstrips production capacity, precipitating a sharp uptick in prices.
Recent reports have exacerbated tensions within the industry. As disclosed by Reuters last week, major cocoa processing plants in the Ivory Coast and Ghana, generating nearly 60% of the world’s cocoa, have curtailed or suspended operations.
The inability to afford beans looms as a crucial concern, foreshadowing surging chocolate prices globally. Manufacturers, already grappling with the fallout of three consecutive years of poor yields and bracing for a fourth, have commenced passing on the costs to consumers.
According to Steve Wateridge, head of research at Tropical Research Services, a seismic demand contraction is imperative to redress the supply depletion.
In essence, this necessitates curbing cocoa consumption to levels sustainable by prevailing supplies. Yet, executing this practically poses challenges, particularly given the universal affection for chocolate.
The International Cocoa Organization (ICCO) paints a somber picture of the global cocoa landscape, anticipating a swelling deficit in the 2023/24 season to 374,000 metric tons (MT) from 74,000 MT in the prior season. This looming shortfall is largely attributable to adverse climatic conditions and prevalent crop ailments.
For ardent chocolate aficionados, reducing demand portends either cutting back on indulgence or facing elevated prices. The latter is already unfolding as chocolate makers hike prices to cope with spiraling raw cocoa expenditures. The former—curtailing consumption—represents a more direct means to reduce demand but poses a hard sell to consumers who hold their chocolate indulgence dear.
Read now: Gold Rush Begins As Fed Hints At Rate Cuts: 5 Mining Stocks Glitter With Over 30% Rally This Month
Image generated using artificial intelligence with Midjourney.