Cocoa is on a roll. The price of the main ingredient in chocolate has hit £2,370 a tonne in London, a 33-year high. US futures are also near historic peaks, with futures eclipsing $3,230 a tonne. The market has been tightening steadily in recent years, as Javier Blas points out in the FT. In the 2009-2010 season, demand is outstripping supply for the fourth year in a row, the longest period of shortage since the mid-1960s. The crop in Ivory Coast, the top grower accounting for 40% of production, has consistently fallen short of expectations. In the 2008-2009 season, for instance, Ivory Coast output was at a 14-year low, according to the International Cocoa Organisation.
Political instability has hampered planting, while the cocoa trees are “very weak and disease-prone”, says Kona Haque at Macquarie. Meanwhile, “we are looking at a strong phase of growth” in demand, which is recovering from last year’s depressed levels; in North America and Europe, cocoa processing rose by an annual 16% and 8% in the first quarter respectively.
Cocoa’s run may not be over just yet. One trader says prices need to rise further to encourage new planting and prevent farmers from switching to rubber (which has also shot up), while speculators have been piling into the market. Barclays Capital reckons that US futures will average $3,350 in the second quarter.