Tuesday, March 26, 2024

Javier Blas: "Chocoholics Won’t Be the Only Victims of Cocoa’s Surge"

 From Bloomberg Opinion, March 26:

When a market becomes disorderly, trading firms are at risk. 

In every sustained commodity price rally, there’s a moment when fundamentals — supply, demand, inventories — no longer matter. The cost of the molecules, whether in the form of energy or foodstuffs or metals, stops being a price and becomes just a number. The market ceases to be orderly and becomes unruly.

It’s clear that moment has arrived for cocoa. On Tuesday, cocoa futures in New York surged above the previously unthinkable $10,000 a metric ton. In dollar terms, they surged more than $1,000 over two days — equal to the trading range that in the past would have taken a year to witness.

First, a look at how it started. Initially, cocoa’s troubles were firmly rooted in fundamentals, triggered largely by a series of crop failures in West Africa, the region that typically produces about 75% of the world’s supply. There, a combination of aging trees, diseases and bad weather combined to create the largest shortfall seen in the cocoa market in more than six decades.

The upshot was a brutal price rally that took cocoa to $6,000 a metric ton by February from $2,500 a year ago, surging above the 1977 record. Facing a massive deficit, the market was doing its work by sending prices high enough to curb consumption and restore the supply-and-demand equilibrium. Although in nominal terms cocoa prices are at a record level, in real terms — adjusted by inflation — prices remain below the peaks of the 1970s. The record high set back then equals to about $27,000 a ton in today’s money.....


Mr. Blas also wrote an eXtwitter thread, here via Threadreader: 

Retail chocolate prices are rising (and will increase much further, while shrinkflation will reduce sizes) after wholesale cocoa prices surged to an unthinkable all-time high of ***$10,000 a ton*** on Tuesday.

1/15 @Opinion Image

First, the magnitude of the rally:

In nominal terms, cocoa prices have surged to >$10,000 – up from ~$2,500 a year ago, and ~$650 a decade ago.

To put things into perspective: the previous record, which only fell in February after 46 years unbroken, was ~$5,500.

2/15 @Opinion
Of course, that’s in nominal terms.

In real terms, adjusted by the cumulative impact of inflation, cocoa is still trading well below the peak set in the 1970s.

The record high established 46 years ago equals to ~$27,000 a ton in today’s money.

3/15 @Opinion

To understand the crisis, one has look at its genesis: years of underinvestment in cocoa farming in West Africa, home to ~75% of the world’s supply. Bad weather and diseases added to the problem....


Although President Biden falsely accused the maker of the SNICKERS® bar, Mars, Inc. of shrinkflation in his State of the Union speech, it may be he was just being psychic and foretelling the future of SNICKERS®