Cocoa beans had been traded for less than $3,000 prior to mid 2023. However in the last 10 months, the price of the beans had been on fire, last month the maximum price surpassed $12,000 making one tonne of the cocoa beans more expensive than one tonne of copper. However, in the last weeks there was a harsh reversal in the cocoa market. The price is now close to $8,000 and there are disagreements among analysts about the new price direction.
Most of the recent decline in the market was not due to change in fundamentals, but because of the lack of liquidity in the markets. The surge in prices has diminished the market depth and made it more volatile. When the prices are going up, traders, especially those traders who are hedging against physical storage of beans, have to pour money into the market to cover their margin calls. When they do not do that, they are forced to close their positions. Closing a position in the future market means, opening another position in the reverse form. This literally meant they short sell positions have been opened in the last month which has pushed the prices down.
Still, $8,000 per tonne of cocoa beans is triple the price of two years ago. Some analysts believe that the price is still high when the new equilibrium between supply and demand is formed, the new price of $6,000 per tonne seems fair. Others point to lack of proper investment in West African countries. Ivory Coast and Ghana are two major producers of cocoa beans and in the last thirty years there was no proper modernization of the farms nor planting new trees. The current farms are getting older with lower and more volatile harvest. Mentioning these issues some analysts do far to forecast a price of $20,000 price per tonne of cocoa beans in the coming months. Yet due to the future contracts, the recent surge in cocoa prices are not completely felt in the store shelves and the chocolate customer prices are expected to go higher in the coming months.Â
Source: bloomberg
