The Worst 'Candyflation' Is Yet To Come As Cocoa Prices Near Record

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by Tyler Durden
Thursday, Dec 28, 2023 - 01:10 AM

Cocoa prices Wednesday hit $4,285 per ton in New York, the highest level since 1978, as the outlook of poor crop harvests across West Africa has been a major bullish factor pushing prices higher this year. There is also an increasing risk that El Nino-induced weather disturbances could cause the global cocoa market to sink into a deficit for the third year.

Bloomberg reports the world's largest chocolate makers, Hershey Co. and Nestle SA, have yet to feel the full impacts of soaring prices because cocoa is bought well in advance. This only means consumers will see a further increase in the prices of their favorite candy bars in 2024. 

"It's the most extraordinary situation I've seen in my career," said Jonathan Parkman, the head of agricultural sales at Marex Group, warning, "I don't think we've seen the worst of the situation for consumers."

According to consumer researcher Euromonitor International, chocolate prices have risen 17% in the US over the last two years. Prices are expected to continue trending higher as cocoa production in West Africa - accounting for most of the world's supply - remains extraordinarily tight. 

"The market does not seem convinced that production will recover enough to avoid a supply deficit for 2023/24," ADM Investor Services Inc. analysts wrote in a recent note. 

Luca Zaramella, chief financial officer at Oreo cookies maker Mondelez International Inc., warned last month during an investor call:

"There is pressure on cocoa."

Analysts warn El Nino-induced weather disturbances could bring drier weather to top-growing regions. They say that could result in a third year of deficits. 

"The expectation of a supply deficit has been compounded with weather variations, especially in West Africa," the International Cocoa Organization said in a recent report. 

In June, we told readers: Global Cocoa Shortage Sends Prices Soaring As "Consumers Should Brace" For 'Chocolateflation'... Fast forward to Halloween, 'candyflation' strikes: 

Data from retail price tracking website Datasembly reveals consumers have been slapped with the second year of double-digit inflation in the candy aisle. Prices for candy jumped 13% this month compared to prices last October. That's up from a 14% increase in candy in October 2022. 

Also, the price of butter, which accounts for 20% of the weight of an average chocolate, has soared, according to KnowledgeCharts, a unit of Commodities Risk Analysis. The entire process, from shipping to processing, has seen increased prices over the last few years, indicating that candyflation will be sticky. 

"Product prices — liquor and butter — are off the charts, so it's only now feeding to consumers," Parkman said.

It appears global central banks are powerless over El Nino-induced food inflation. Higher prices may be the only cure for Hershey's Kiss and Crunch bar inflation.