Factors driving the current surge as we wind down the year is a forecast supply deficit from the International Cocoa Organization (ICCO) of 478,000 tons for the 2023-24 season, with end-of-season stocks at a 46-year low, indicating a critically tight market.
Severe droughts in major cocoa-producing nations, notably Ghana and Cote d’Ivoire, have significantly reduced global supply. Industry watchers note that the impending Harmattan winds from the Sahara threaten future harvests.
Market dynamics
The issue for the cocoa market is that it was already in a deficit environment in the two previous seasons, which has meant that global inventories are already at their lowest levels since the 2015-16 season, writes Warren Patterson, head of commodities strategy at ING bank.
Low liquidity and reduced open interest have exacerbated price volatility, making the market highly sensitive to supply concerns.
“Although supply shortfalls could be seeing some suppliers/traders needing to find alternative supplies to meet contractual obligations, the uncertainty over how much higher prices could go may also be seeing some physical buyers rushing in to lock in prices,” Patterson said.
Impact on the chocolate industry
Despite these hikes, consumer demand remains steady, though they may need to adjust their purchasing habits or seek alternatives.
The cocoa price surge also compels chocolate manufacturers to adjust their strategies. Some are reducing product sizes—a practice known as ‘shrinkflation’—while others are reformulating recipes to include less cocoa and more fillers.
Analysts anticipate elevated cocoa prices will persist into 2025, driven by ongoing supply challenges and robust demand. Global cocoa production is expected to remain weak from January to March, creating significant challenges for chocolate makers who reduced stockpiles and hedging amid hopes for a production rebound.
Mumbi GitauView Mumbi Gitau, Soft Commodities Reporter at Bloomberg, writes: “The outlook for top grower Cote d’Ivoire’s cocoa harvest is souring, with bad weather and a virulent crop disease threatening to deepen a global supply crunch and add to the price rally that has blown past records.
“Production in the country, which accounts for more than a third of global production, is expected at 1.9 million tons in the 2024-25 season, according to an average of eight analyst and trader estimates compiled by Bloomberg.
"That’s down nearly 10% from a government outlook of about 2.1 to 2.2 million tons near the start of the season in October.”
The situation underscores the need for sustainable agricultural practices and investment in cocoa-producing regions to stabilize the market and ensure fair compensation for farmers.
EUDR delay voted through by Parliament
The EU Parliament in Strasbourg, France, voted on Tuesday (17 December) by a large majority (546 votes in favor, 97 against and 7 abstentions) to officially give the green light to postpone the entry into force of the EUDR (European Union Deforestation Regulation) by one year.
Anthony Myers
The Parliament approved the provisional political agreement with the Council to delay the application of the rules that will ban the sale in the EU of products sourced from deforested land. Before the one-year delay can enter into force, the agreed text must be endorsed by the Council and published in the EU Official Journal before the end of 2024.
This now means that large operators and traders will have to respect the obligations of this regulation as of 30 December 2025 and micro- and small enterprises from 30 June 2026. This additional time is intended to help companies worldwide implement the rules more smoothly from the date of application without undermining the objectives of the law.
In a statement following the vote, the solidaridadnetwork said: “The real challenge of the EUDR is now about to begin: how to make it deliver on its promise, and how to do so positively for the communities at the heart of its implementation: smallholder producers across the world.”
Anthony Myers