Treasure those Easter eggs. Cocoa markets have been hoppier than an Easter bunny. After a blistering 2024 in which prices nearly tripled — performing even better than bitcoin — the commodity melted down again in February.
Buyers of cocoa, generally regarded as an “inelastic” commodity, are undeterred when their cost per metric tonne rises. Nonetheless, three consecutive years of poor harvests are having an impact. Analysts are revising down forecasts for US confectioner Hershey, which reports first-quarter earnings in just a couple of weeks.
Compared with other cyclical commodities, cocoa has some peculiarities. Speculators play an outsized role given the volatility in the market. The plant itself also makes responding to price changes difficult. It takes four years for a tree to bear fruit, so it’s hard to respond nimbly to feast or famine unlike, say, an annual crop like wheat or rye.
In the Ivory Coast and Ghana, home to about half the world’s cocoa production, prices are set by monopoly state buyers rather than the market. That explains why a Ghanaian farmer, receiving a fixed rate less than half the market price, may choose not to blow their income on pesticide or new trees when the latter soars.
No wonder, then that pestilence and the elements have wreaked havoc. Production has fallen short of demand for three consecutive years; in 2024, the gap was one-tenth of the previous year’s production. Yields dipped on ageing trees; about a fifth of those in the Ivory Coast are estimated to be over the optimal expiry of 30 years. Many farmers in Ghana and Ivory Coast switched to — respectively — illegal gold mining and rubber plantations. As industry withdrew, profiteers moved in.
A long view — say, four years to allow new saplings to produce fruit — could see the pendulum swing to surplus. Producing countries unconstrained by fixed prices will increase production. These include Ecuador, the third-biggest supplier, and other markets in Latin America and Africa. Weather, always a wild card, could turn benign; pesticides eradicate disease. The International Cocoa Organization expects a modest surplus — 3 per cent of production — this season.
Cocoa’s price inelasticity may also be a moveable feast. Demand must withstand tariffs, weight-loss drugs and a host of food scientists bent on fooling our palates with shea butter, palm oil, lab-grown synthetics or just plain old downsized bars of the good stuff. Enjoy those chocolate eggs, by all means. If investing in their ingredients, bring a strong stomach.
