Cocoa futures in New York soared to unprecedented levels as the market faces persistent supply worries. The rising costs are expected to increase the financial strain on chocolate producers and consumers alike.
Earlier in the year, the price of the commodity had surged due to poor harvests in West Africa, a key region for cocoa production, leading to a third consecutive year of supply shortfall.
The recent price increase has been fueled by adverse weather conditions that threaten to further damage the region’s crops and hinder efforts to replenish low global cocoa reserves.
The situation has been aggravated by the rising costs for traders to hold onto their positions in the market. This financial pressure has resulted in a significant reduction of open interest to the lowest levels seen in ten years as of November, indicating that fewer traders are betting on cocoa futures. This drop in market participation could potentially lead to greater price volatility in the future.
On Monday, the most actively traded cocoa contract climbed by 4.1%, reaching $11,768 per ton. Since the beginning of 2024, cocoa futures have more than doubled in price, which has prompted major chocolate manufacturers, including Hershey Co (NYSE:HSY)., to raise their product prices to cope with the higher costs.
The supply issues for cocoa have been exacerbated by long-term structural problems within the industry, such as crop diseases and the historically low wages paid to farmers.
Additionally, cocoa trees that have been recently planted will require several years to mature and produce pods, which means that any significant increase in production is still some time away.
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