Several forces are trying to move cocoa prices in different directions at the start of 2022. The largest producer Côte d’Ivoire saw a drop in production with an expected 1.55 million tonnes compared with 1.75 million tonnes the previous year for the October to March main harvest.
Ghana’s results were much worse than expected, with a drop of 54% reported by the ICCO in their December report.
This has contributed to a tightening of stock at warehouses – we ran a report on the stock in the ICE warehouses globally over the last three months and noted stocks dropped from 5,229,292 to 4,755,765 bags.
Whether you should be optimistic or pessimistic about price rises depends on if you’re buying or selling. A higher price is preferential for farmers as long as their production numbers don’t drop significantly.
Ideally, for the farmer, you want prices to rise due to increased demand, not decreased production. Nevertheless, as we noted earlier, that production does appear to be taking a hit, especially in Ghana, where such a significant drop might be partially explained by the record harvest a year earlier. However, long-term concerns over ageing trees, lack of investment by the government and challenges with a disease, like the Cocoa Swollen Shoot Virus, may also be contributing.
There are signs the market demand may pick up, however. For example, airline stocks were recording double-digit increases at the start of the year as investors saw restrictions on travel easing. This will be good for chocolate demand, as airports are a major source of chocolate purchases.
In addition, Hershey’s beat analyst expectations, citing big demand for the comfort of candy, giving further proof of a potential uptick in demand.
However, some clouds are forming around inflation, which could impact the industry in several negative ways. First, the cost of shipping and other input costs are going to force the chocolate industry to raise prices, and it is unknown how much that will temper demand.
Second, inflation is pushing up the fertiliser price, and farmers could well feel the pinch of cost rises in other areas that might wipe out any potential benefit of higher cocoa prices.