A farmers holds cocoa beans while he is drying them at a village in Sinfra, Ivory Coast, on April 29, 2023.

Luc Gnago | Reuters

Consumers could start to see the effect of surging cocoa prices as the world faces the worst supply deficit in decades, with farmers in West Africa struggling against bad weather, disease and failing trees.

Cocoa futures for May delivery surged to an all-time intraday high of $10,080 per metric ton Tuesday before ending the day down 0.3% to settle at $9,622. Cocoa has more than tripled in cost over the past year and is up 129% in 2024.

Hershey CEO Michele Buck told CNBC last month that the company has a hedging strategy to manage the price volatility. The National Confectioners Association told CNBC in an email that the industry is working with retailers to “manage down costs” and keep chocolate affordable for consumers.

Though the large chocolate companies were well-hedged last year and did not have to immediately pass on high prices to consumers, there is only so much the industry can do to absorb costs, said Paul Joules, a commodities analyst at Rabobank.

The world is facing the largest cocoa supply deficit in more than 60 years and consumers could start to see the effect at the end of this year or early 2025, Joules said. The International Cocoa Organization has forecast a supply deficit of 374,000 tons for the 2023-24 season, a 405% increase from a deficit of 74,000 tons in the previous season.

“The worst is still yet to come,” Joules said. Cocoa prices will likely remain elevated for some time because there are no easy fixes to the systemic issues facing the market, he said.

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Cocoa in past 12 months

Consumers could face higher prices or “shrinkflation” in the form of smaller chocolate bars, Joules said. Companies might also adjust ingredients to use less cocoa in some products, he said. The worst sticker shock would come from dark chocolate, which has a very high cocoa content, the analyst said.

David Branch, sector manager at Wells Fargo’s Agri-Food Institute, said consumers could see higher prices as soon as Easter, which is on Sunday.

“Given that cocoa prices and other manufacturing costs have been rising steadily over the past year, it is likely consumers will see a price spike on chocolate candy this Easter,” Branch told clients in a research note this month.

Cocoa prices have been on a tear due to supply disruptions in the key producing nations of Ivory Coast and Ghana, Joules said. The two countries represent about 60% of global cocoa production.

Crops have been hit by black pod disease and swollen shoot virus and many trees are past their maximum yield potential because there has not been a major round of planting since the early 2000s, Joules said.

Heavy rains exacerbated the disease issues, Branch said, and the El Niño weather phenomenon has also led to drier conditions resulting in lower cocoa yields in previous years. Seasonal harmattan winds were more extreme this year, also affecting crop yields, Branch said.

Farmers in Ivory Coast are increasingly exiting cocoa production for more lucrative crops such as rubber, Joules said. The governments of Ghana and Ivory Coast set fixed prices for the farmers at the start of the season so they are not benefiting from the currently rally, the analyst said.

The recent runup is likely due to panic among some commercial buyers rather than market speculation, Joules said. Buyers see the magnitude of the supply deficit and are trying to secure the cocoa that is available, according to the analyst.

Speculators contributed to the early leg of the rally last year as they bet on higher prices by increasing their long positions, Joules said, but they have been exiting those positions this year to book profits.

The spike in prices has hit chocolate giant Hershey, which sees flat earnings for the year. Hershey stock is down about 22% over the past 12 months, while Nestle’s Switzerland-listed shares have shed about 13% during the same period.

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