A storm in an Easter egg or those fears of a melting box of Valentines was overdone?
After starting the year with a surge that seemed never-ending, worrying Cupid and the Easter Bunny that they might be priced out of a job, cocoa prices have plunged this week.
It’s not yet back to ‘normality,’ but the start of May has seen prices down nearly a third from just last week and trading around $US7,300 a tonne.
While that's still more than 70% above where they started in 2024 ($US4,275 a tonne), it's considerably better than the $US11,722 mark they touched in mid-April.
At that level, the price surge was threatening to boost chocolate prices later this year and in early 2025, and in turn, worrying major players like Nestle, Lindt, and Hershey (the majors have active hedging programs).
But while many producers are hedged up until late 2024—not all are, especially industrial users (such as makers of biscuits, cakes, etc.), and they got nervous as prices continued to surge and tried to hedge their positions just as drought and bad weather hit cocoa-growing regions in West Africa and Asia.
Periods of intense rain followed by drought in West Africa have reduced crop yields, in addition to swollen root disease affecting the health of cocoa trees.
The Financial Times said in a report this week that the depressed cocoa price and poor returns for near-subsistence growers in West Africa had meant they had little money to control disease and rebuild their plantations.
That brought hedge fund sharks and other speculators who chased cocoa prices higher than expected. The sharks were forced to start cleaning out their positions in late April when it became clear US inflation wasn’t easing and the Fed wasn’t going to cut rates anytime soon.
That left the US dollar and US bond yields higher than expected, meaning their positions were starting to cost them money (and they didn’t want to be loaded up with beans). Trade buyers retreated as prices surged through late March (no one wanted to be stuck with high-priced beans they would lose money on) and into April.
The final trigger for the sell-off was probably the US consumer inflation figures in mid-April and then late last week with the Fed’s preferred PCE core inflation data, which confirmed the fall in inflation has stopped.
That saw the New York futures price tumble from $US10,829 a tonne last Friday, April 26, to $US7,330 on Friday morning in early Asian trading. Interestingly, the price slumped to just over $US7,800 a tonne on Tuesday, then rebounded back to $US9,400 a tonne on Wednesday, only to fall out of bed on Thursday.
