Bullish Chocolate Sentiments Prevail as Cocoa Prices Rise to Seven-Year Highs

Published 2023년 7월 22일

The cost of chocolate has risen significantly in 2023 due to the climbing costs of its main ingredient, cocoa. The ICE benchmark September contract #7 (CAU23) for cocoa in London experienced a daily gain of over 2% on July 4, reaching GBP 2,550 per metric ton (mt), the highest price since 2016. New York also saw a 2.7% daily rise in cocoa prices on July 4, with the September ICE contract (CCU23) reaching USD 3,398/mt, the highest in 7 1/2 years. According to NielsenIQ, this increase in cocoa prices has resulted in rising chocolate prices, as reflected by a 14% increase in the past year. This bullish sentiment is expected to persist for most of the year, with any downward pressure resulting from weak demand being short-lived.

For decades, chocolate has been a desirable and pricey indulgence enjoyed by all demographics – from playful choices such as the colorful M&M's enjoyed by young consumers to elegant options such as dark chocolate appreciated by mature shoppers. Although chocolate is a luxury purchase enjoyed on occasion rather than consumed frequently due to its elevated price, the cost of this sweet guilty pleasure has risen more significantly in 2023 due to the climbing costs of its main ingredient, cocoa.

Adverse weather conditions have posed a significant threat to cocoa production in West Africa, particularly in the Ivory Coast and Ghana –the primary suppliers of the key raw material used in chocolate production. Since the Ivory Coast and Ghana account for over 60% of the world's cocoa production, recent weather challenges have led to a surge in cocoa prices. In July, cocoa prices rose substantially on the New York and London exchanges. The ICE benchmark September contract #7 (CAU23) for cocoa in London experienced a daily gain of over 2% on July 4, reaching GBP 2,550 per metric ton (mt), the highest price since 2016. New York also saw a 2.7% daily rise in cocoa prices on July 4, with the September ICE contract (CCU23) reaching USD 3,398/mt, the highest in 7 1/2 years.

Source: Tridge, ICE

According to NielsenIQ, this increase in cocoa prices has resulted in rising chocolate prices, as reflected by a 14% increase in the past year. In the United Kingdom (UK), the average price of KitKats rose significantly by 10% in the first three months of 2023, contributing to a 5.6% rise in Nestlé's global sales of USD 27.39 billion during the same period. Nestlé's competitors faced similar cost pressures, with Mars Wrigley's Galaxy chocolate bars experiencing a price surge of nearly 50% in the UK in March and Mondelēz International raising the price of its iconic Toblerone line by over 40% in January of the same year. Dark chocolate prices are expected to be the hardest hit due to its higher cocoa solids content.

Over the next month, Tridge expects a sideways chocolate price trend to prevail owing to weakening chocolate demand and a bullish cocoa outlook for the upcoming 2023/24 season. Tridge anticipates that demand for chocolate will soften slightly in the coming month as consumers react to the high-price trend. This sentiment is supported by firms, such as the Swiss chocolate giant Barry Callebaut, reporting weakening demand for chocolate products in recent weeks as consumers react to inflationary pressures. Chocolate prices could drop slightly in response to this waning demand. As a result, buyers are encouraged to sell to take advantage of the elevated price points before prices soften as demand weakens.

However, this bearish outlook is not expected to last long as production woes continue to worsen in the Ivory Coast, pointing towards elevated cocoa prices and a smaller crop in the coming season spanning October to September. Above-average rainfall in most of Ivory Coast's cocoa regions in June caused flooding in plantations, potentially impacting the start of the main crop season from October to March. In particular, the western part of Soubre received 119 mm of rainfall during the last week in June, 65.7 mm above the average. In the southern region of Agboville, there was 146.2 mm, 87 mm above the yearly average. In Divo, 57.8 mm of rain fell, 18.5 mm above the annual average. Farmers in Divo expressed concerns that the excessive showers might damage new flowers and hinder the start of the main crop. Further heavy rainfall could delay the season as it may cause flowers to fall from the trees. Additionally, the mid-crop season from April to September is already tailing off with low yields.

Source: Tridge, Gro Intelligence

All these factors point towards a bullish cocoa outlook, with many industry bodies predicting that cocoa prices could rise as high as USD 3,600/mt. Given that cocoa is the main ingredient in chocolate production, this bullish sentiment points towards elevated prices for most of the year, with any downward pressure resulting from weak demand being short-lived.

For further reading, follow the links below:

1. The Price of Cocoa Beans in Ghana Increased by 12% WoW on Higher Demand

2. Bullish Post-Easter Sentiments Prevail Owing to Tight Global Supplies