Traders left with a bitter taste as price of cocoa plummets

The challenges facing traders in an increasingly turbulent cocoa market were laid bare yesterday when the price of the key chocolate ingredient slumped to its lowest level in a month.

Cocoa futures reached their highest peaks in more than four decades earlier in the year as traders bet on an acute supply shortage, driven by poor crops in Ghana and Ivory Coast, which together supply about 60 per cent of the world’s cocoa. Cocoa futures, traded on the ICE exchange and used as a global price benchmark, had nearly tripled in value this year alone.

However, the price has fallen by 16 per cent since the end of last week after the ascent in cocoa left traders dealing with losses and also prompted hedge funds to close out positions, all of which caused record low levels of liquidity in the market. The three-month futures contract has fallen by more than a fifth from its peak to $9,259.

The poor cocoa crop — which is in stark contrast with rising global demand — has been blamed on many factors. The cyclical El Niño climate phenomenon has caused hotter and drier weather conditions in west Africa. Growers also have been challenged by an outbreak of disease, which is cured by cutting out trees and replanting. It takes between five and seven years to regrow a tree to the point that it can yield cocoa beans for ­harvesting, another barrier to quickly rebuilding stocks.

Figures from the European Cocoa Association, a trade body whose members account for two thirds of Europe’s cocoa bean grinding, show that grinds (where beans are converted into a fine powder and then into chocolate) slipped by about 2 per cent in Europe in the first three months of the year, compared with the same period a year earlier. In addition, according to an analysis from the London Stock Exchange Group, the volume of cocoa shipments from Ivory Coast between October and March was 32 per cent lower than in the previous year and was 24 per cent below the four-year ­average.

The rally in cocoa this year had made the crop more expensive than copper, the industrial metal that has become increasingly coveted by the world’s largest miners for its role in the energy transition. Pierre Andurand, a hedge fund manager known for making bets on oil, had said that the cocoa futures could break through $20,000 a tonne this year.

The sharp rise in cocoa prices coincided with sharp increases in the costs of sugar and milk products. These have already reached shelves on the shop floor, with the makers of Hershey and Cadbury chocolates warning that their prices will have to rise to cover costs.