Cocoa futures soared! Well-known chocolate brands want to raise prices?

In daily life, chocolate is a favorite snack for many people. But as the price of raw materials such as cocoa rises, the price of your regular chocolate may increase.

Soaring!Cocoa futures hit record highs

Recently, the soaring cocoa futures have attracted market attention. Cocoa, the raw material for chocolate, rose to a more than 12-year high in New York on July 18, a few weeks after rising to a 46-year high in London, Reuters previously reported.

A reporter from China New Finance and Economics inquired on the Intercontinental Exchange and found that the rise in London cocoa futures began at the end of last year. It once rose to a new high of 2,703 pounds per ton on August 1, and has continued to hover at high levels in recent days.

London cocoa futures (1 year) chart

Why are cocoa futures “rising aggressively”? The June cocoa market report issued by the International Cocoa Organization (ICCO) mentioned that in the case of supply shortages in the global cocoa market for many years, the floods may have a potentially harmful impact on the cocoa growth in Côte d’Ivoire, causing serious tension and thus Contributed to the rise in cocoa futures prices.

According to the Abidjan Portal of Côte d’Ivoire, Côte d’Ivoire is the world’s largest cocoa producer. Its cocoa production accounts for 45% of the world’s cocoa production, and cocoa exports account for 40% of its total exports. However, affected by continuous heavy rainfall, Yves Brahima Kone, chairman of the Cocoa and Coffee Committee of Côte d’Ivoire, announced that Côte d’Ivoire has decided to stop the export of cocoa in 2023-2024.

Not only Côte d’Ivoire, but the cocoa production of surrounding countries such as Ghana is also deeply affected by rainfall. Affected by weather and other factors, Bloomberg reported that cocoa production in Côte d’Ivoire is expected to drop by 20% year-on-year this year, and cocoa production in Ghana, the second largest cocoa producer, is expected to be lower than the historical average.

Sugar futures also at highs

Not only cocoa, sugar, another main ingredient needed to make chocolate, has also seen futures prices remain high this year.

Due to increased demand and unfavorable weather expectations, according to Reuters, ICE raw sugar futures once climbed to an 11-year high in April this year.

Although the price of sugar has dropped recently, as of August 11, the price of sugar 11 main futures still closed at 24.38 cents per pound.

Sugar 11 main futures price chart.

In this regard, the Food and Agriculture Organization of the United Nations stated that continued concerns about the potential impact of the El Niño phenomenon on sugarcane crops and the combined impact of rising international crude oil prices have restrained the decline in world sugar prices.

However, prices for dairy products used in some milk chocolates have dropped. The data show that the FAO Dairy Price Index fell by 0.4% month-on-month in July and fell 20.6% compared to the same period last year.

Lindt and Hershey release price hike signals

Chocolate prices will increase by 14% in 2022, according to consumer intelligence database NielsenIQ. In the face of soaring cocoa and sugar futures prices, the market also believes that chocolate prices may rise further.

Sergey Chetvertakov, chief research analyst at S&P Global Commodity Insights, told CNBC, “I think consumers should brace for the possibility of higher chocolate prices. Squeezed by rising costs, soaring energy costs and rising interest rates, they have had to pass on higher production costs to consumers.”

Lindt and Hershey executives warned in recent days that further increases in product prices cannot be ruled out, even as consumers already have to pay more for their products, Bloomberg reported.

“For most companies, the impact of significant future cocoa price increases will not be felt until the second half of 2023,” Lindt Chief Financial Officer Martin Hug told analysts on an earnings call. Firms feeling the pressure of additional costs “are therefore likely to feel the need to adjust their pricing”.

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