With cocoa prices reaching highs never before seen this week, chocolate enthusiasts worldwide face the prospect of a price increase for their beloved treats.
Cocoa futures—the world benchmark for the global cocoa market—touched a record $6,019 per metric ton, a rise that is being attributed to an El Niño-type weather event and poor harvests in key producing regions.
The surge in cocoa prices can be traced back to a series of climatic and agricultural challenges, notably in West Africa, which accounts for three-quarters of the world's cocoa production, according to ADM Investor Services (ADMIS), one of the leaders in the futures brokerage industry. The El Niño weather phenomenon has led to drier temperatures in major cocoa-producing countries like Ghana and Ivory Coast, ADMIS said, severely affecting crop yields. Ghana's production is anticipated to fall drastically, with a global cocoa deficit forecasted at 375,000 tons.
For chocolate manufacturers, like the Feastables brand owned by Jimmy Donaldson, better known as MrBeast, the spike in cocoa prices spells trouble. Industry giants including Hershey and Mondelez, the maker of Cadbury, have already felt the pinch, with both companies reporting sales drops, according to publicly available company data.
Hershey's CEO Michele Buck on Thursday highlighted the challenge of navigating these "historic cocoa prices," which are expected to hamper the company's earnings growth. Despite having hedging strategies in place, the volatility in cocoa prices presents an obstacle to maintaining stable production costs, the CEO said to investors in an earnings statement.
Newsweek has reached out to both MrBeast and the Hershey company by email for comment on Friday.
The rise in cocoa prices will inevitably lead to higher chocolate prices for consumers, industry insiders say, potentially impacting sales for the chocolate makers just before Valentine's Day, the third-largest holiday for chocolate sales after Easter and Christmas.
With the cost of the core ingredient nearly doubling in the past year, chocolate prices in the United States have risen by 11 percent at the end of January, according to consumer intelligence company NIQ. The trend is not expected to subside soon, with some experts predicting that the shortage and high prices could extend into next year, affecting the overall affordability and consumption patterns of chocolate products.
Hershey has already braced for flat earnings growth this year, a sentiment echoed by other major players in the industry. The cost pressure from raw materials is compounded by other rising expenses, including labor and transportation, further squeezing profit margins.
Chocolate makers are exploring various strategies to mitigate the impact, including price adjustments and cost management initiatives, but the uncertainty in cocoa supply remains a concern in the near-to-mid term outlook, according to ADMIS.
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Aj Fabino is a Newsweek reporter based in Chicago. His focus is reporting on Economy & Finance. Aj joined Newsweek ... Read more
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