Cocoa prices could be out of control until 2026: Here's why

The price of cocoa (CC=F) is still trading over 128% compared to a year ago due to increased weather incidents and crop disease which have led to supply shortages.

Saxo Bank head of commodity strategy Ole Hansen joins Catalysts to give insight into the rise of cocoa prices, recent supply chain issues, and more.

Hansen points out how the high prices themselves hasn't fully incentivized production booms: "So far we haven't really seen those structures really unfold because the producers in question here is primarily in West Africa. And it does take time for the economics, the farm gate prices to raise to levels where they can increase production. At the same time, it looks like global demand remains fairly robust."

Hansen explains why prices may be out of control for some time, as far ahead as 2026 possibly.

"AAnd that really is a combination of two things: first and foremost, that the farmers are receiving more for their product. They can spend more money on fertilizers and also pesticides, which is a key right now due to some diseases they have in some of the crops. But also that we see the weather continue to improve...."

For more expert insight and the latest market action, click here to watch this full episode of Catalysts.

This post was written by Nicholas Jacobino

Video transcript

Cocoa prices still on a tear this year, the costs primarily related to weather and crop disease in West Africa, which has led to major supply shortages.

And this is why, on some consumer facing companies here, like Hershey's, as higher chocolate costs will weigh on company profits and you can see their cocoa futures up over 80% year to date.

So for more on the long term and short term future for prices, we're going to welcome in all and Hansen, he is Saxo Bank's head of commodities strategy.

It's great to have you here, so talk to me about the degree to which you anticipate cocoa prices continuing this run to the upside because we have seen a little bit of volatility over the last couple of months.

Particularly since May.

We've seen a couple of bottoms and cocoa prices.

Do you anticipate any relief in the price anytime soon?

Well, good morning and greetings from Copenhagen.

I think what we've seen, uh, right now is based on the market consolidating, but obviously at a much higher level than we have, uh, have seen in previous years at the And it just highlights that even though when you say the when you look at commodities and you say the best cure for a high price is a high price because it incentivized production and the lowest demand.

So far, we haven't really seen those structures really unfold because we because the producers in question here, is primarily West Africa, and it does take time for the economics, the farm gate prices to raise to levels where they can increase production.

At the same time, it looks like global demand remains fairly robust.

I suppose we will still buy our chocolate bar even though we have to pay a few a few cents more for it.

Yeah.

I mean, we need those little luxuries L A.

So we gotta get the chocolate.

But all these things considered and and you're pointing out, uh, a key part of this industry, which is the end use industries that are reliable and tracking cocoa prices here.

So what does that mean in terms of pass through for higher prices and for how extended?

Are you kind of calculating or or running the math on your side that we could see higher prices for longer because of the cocoa price input?

Well, we just have to look at the, uh, the Ford prices in the futures market.

And while we are, we are currently settling in around, uh, just below $8000 a tonne in in, uh, in the front month contract, which is December.

That's basically, uh, above the long term average, which was around 2.5 1000 the next year.

If you look into the next season crop, which is basically between October and March, uh, that the the harvest once we through that even though we have that harvest, the prices for May next year still around something like $6000.

So it does indicate that we are looking at we're looking potentially into 2026 before potentially we can get some of this under control.

And that really is a combination of two things first and foremost that the farmers are receiving more for their product.

They can spend more money on fertilisers and also pesticides, which is, uh, which is the key right now, due to some some diseases they have in some of the crops, but also that, uh, that that we we see here the weather continue to improve.

And obviously the weather is a big airfare because we have seen a very troubled season on the Southern Hemisphere when it comes to food production, we've seen cocoa, obviously, as we talk about now, but coffee prices hitting record highs as well.

So it is the weather that ultimately will determine whether we can get some more balance in the market.

And, uh, yeah, that is really not for us to to to guess where that's going.

You know it.

It's so interesting.

I was just about to bring that up, too, because, I mean, we're coming off of a year where in the US alone we saw during 2023 a.

A record number of billion dollar weather events and that directly passes through E, especially as you start to think about other parts of the world that are producing crops and producing uh, cocoa and trying to make sure that regardless of whether there is able to be steady production, how is production going to need to shift?

How is the the the farming, the cultivation of cocoa going to need to change in order to not be so impacted by events and severe weather events.

Um, that foreseeable future are continuing to worsen at this juncture.

Well, it is ultimately a question about location.

And when we look at where the bulk of the world's cocoa beans are being produced, that is West Africa.

It is close to the equator.

It's where the temperature and the climate in recent years has been the best, most supportive for this kind of production.

So it's not.

You can't just move it to somewhere else.

We we're seeing a bit of a pickup in in in Central America.

Uh, but but not not to the extent that you can replace what we're seeing in Africa.

So right now it is mostly a question of having the right, uh, having the means to, uh, to support the farmers through, uh, through, among other things, uh, fertilisers.

And then again, just trying to be, uh, be smart with how how water is being consumed.

But many of these farmers there are lots are probably the size of a couple of football fields, so they don't really have much in terms of selling power when they want to sell their product.

So, uh, so that's another another issue.

They really are dependent on what kind of price that the government is, uh is, uh, setting for for them