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This Commodity Has Far Outperformed Bitcoin's 130%+ Surge Over the Last 12 Months

Published 03/19/2024, 07:54 AM
  • Cocoa prices have surged this year, reaching record highs this year.
  • This remarkable surge, outpacing even Bitcoin's gains, marks a significant departure from historical trading patterns.
  • The surge in cocoa prices is attributed to supply challenges which could continue to lift prices in the medium term.
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  • Cocoa prices have doubled since the beginning of the year, reaching record highs close to $8,500 per ton.

    This adds to the ongoing bullish run for the commoditiy. In fact, over the past one year, cocoa experienced a remarkable surge of 204%, outpacing Bitcoin, which gained nearly 133% since March 19 last year.

    Historically, the prices have traded within a certain price range until 2023. During that year, the commodity saw a 66% surge.

    Typically it traded up or down $2,000 in previous years. However, due to imbalances in the supply-demand ratio, cocoa prices started to rise significantly.

    US Cocoa Futures Price Chart

    Why Are Cocoa Prices on the Rise?

    Cocoa futures, in particular, have skyrocketed due to challenges in the production of cocoa, the primary ingredient in chocolate, and environmental issues.

    The recent surge in cocoa prices stems from poor crop yields in West Africa, the main cocoa-producing region, following a drought last year.

    Additionally, adverse weather conditions like dry spells and diseased cocoa trees contribute to the supply constraints. To control the spread of disease, farmers resort to cutting down infected trees, which can disrupt cocoa production for up to five years.

    Moreover, political instability and insufficient incentives for cocoa production exacerbate the supply issues. Efforts to improve cocoa quality through better fertilizers and increased labor face financial hurdles, as prices are determined a year in advance.

    These challenges have triggered a significant supply crisis, with cocoa production declining monthly. This directly impacts chocolate companies worldwide, as cocoa is a key ingredient in chocolate production. The doubling of cocoa prices in 2024 signals the severity of the crisis.

    Given that the majority of cocoa production occurs in West African countries like Ivory Coast, Ghana, Cameroon, and Nigeria, the problems in these regions are unlikely to be resolved quickly. The International Cocoa Organization forecasts a supply deficit of approximately 374K tons for this year, warning of potential price hikes or reduced product offerings for consumers.

    The surge in cocoa prices, along with rising sugar prices, leads to higher chocolate prices, outpacing general food inflation rates. Shifting cocoa production to Latin American countries with more favorable rainfall is seen as a long-term solution. However, closing the supply gap in the short term remains challenging.

    Consequently, the rally in cocoa futures reflects a crisis in the sector, with slim prospects for a supply-side correction in the near future, according to chocolate and confectionery producers.


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    Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.

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