Fuelling Inflation

In April this year, around Easter, chocolate prices shot the roof. The reason was that some moron in London called it and said production was falling short. It was not ‘choclageddon’; but the market being more emotional than any woman you would have encountered. Sentiments changed and chocolate futures were bid up.

The news was that chocolate had become more expensive. It was not like those labouring in Ghana in stifling heat were suddenly getting paid double. It was the intermediaries, not even those involved in the supply chain, but traders in London speculating over the commodities Futures were demanding more money on the back of words printed on pages.

They like to play ‘news-news’ and cause the market to move. Without volatility, there is no money to be made in the markets.

The El Ni?o weather phenomenon, which hit the west coast of Africa last year, carrying unseasonal heavy rains followed by dry heat, is the main factor in an 11% drop in the season’s main cocoa harvest, according to the latest figures from the International Cocoa Organization (ICCO).

Source: Confectionary News (March 2024)

And then one week ago

Improved weather in West Africa is expected to boost next season’s cocoa output. Prices have dropped over 30% from peak levels in April but remain significantly higher than the previous year.

Despite the surplus, weak cocoa demand is forecasted and high prices may affect consumption adversely in the coming months according to Marex expert Jonathan Parkman.

Source: Value the markets (July 2024)

In the meantime?—?Chocolate Futures

The main chocolate harvest is between October and March. A mid-crop is harvested between May and August. Both of these news pieces cannot possibly be true for either of the harvests!

Climate is playing havoc with output. But those trends will play out over a matter of years not quarters. But financial markets play by the second. Hence you see mad gyrations in prices that are determined by speculators who are often not even remotely involved in the supply chain.

In the meantime what does the production volume of Cacao look like?

It has been going up, up and away!

Ultimately all of this feeds prices while bearing no relationship with demand or supply and hence the inability to control inflation.