Cocoa prices rally to record high, prompting fresh volatility warnings

The price of chocolate’s key ingredient has skyrocketed this year, prompting analysts to issue fresh warnings about extreme price volatility.

The New York Cocoa futures contract with March delivery traded as much as 1% higher at $11,938 per metric ton on Tuesday, notching yet another record high. It has since pared some of those gains, trading at $11,864 at around 8:20 a.m. ET.

The benchmark contract, which hit an all-time intraday high of $11,925 in the previous session, is up over 180% year-to-date.

It comes amid renewed concerns about adverse weather conditions and supply tightness in West Africa, home to around three-quarters of the world’s cocoa production.

Strategists at Dutch bank ING said persistent tightness in cocoa and coffee markets, coupled with weather uncertainty, meant that prices were likely to remain volatile through next year.

The global cocoa market registered its largest deficit in over 60 years in the 2023-2024 marketing year, ING said in a research note, citing data from the International Cocoa Organization (ICCO). It attributed this shortfall to crop failures in Ivory Coast and Ghana, the world’s largest cocoa producers.

“While prospects for the 2024/25 marketing year are looking better, there are still concerns over weather developments in West Africa and what it could mean for output this season,” Warren Patterson, head of commodities strategy at ING, said in a note published Dec. 11.

“Forecasts currently show that West African output – which accounts for more than 70% of global output – will edge higher. However, there are risks to this due to recent poor weather,” he continued.

Looking ahead, Patterson said prices were likely to remain historically elevated next year, which will be necessary “to keep a lid on demand.”

Like cocoa, coffee prices have also soared in 2024, with analysts recently warning it could take years for one of the world’s most traded commodities to recover.

Rabobank’s Carlos Mera singled out cocoa and coffee as commodities of interest to professional traders, although cautioned that commodity markets remain “very volatile” and “very dangerous.”

“[Cocoa] is one of the most obscure commodities so I wouldn’t advise anyone that doesn’t know to go in there but certainly it is one of the most fun commodities to look at,” Mera told CNBC’s “Squawk Box Europe” on Tuesday.

“And then coffee, we have another spike. Coffee has hit its highest price since 1977 [and] depending on which contract you look [at], it might be a historical record and record robusta prices as well … It is quite an interesting situation,” he added.