Cocoa prices have fallen slightly: will chocolate become cheaper?
9 January 09:03
Cocoa prices fell to the lowest level in the last week after the Intercontinental Exchange Inc. (ICE) introduced measures to curb market volatility. This is reported by "Komersant Ukrainian" with reference to Bloomberg.
The most active futures contracts on the London Stock Exchange fell by 4.8%.
On Wednesday, there was also a drop in cocoa prices on the New York Stock Exchange, where the most active contracts fell by 6.3%. Prices reached their lowest level since December 30.
New exchange policy
On Tuesday, ICE Futures Europe lowered the so-called accountability levels for contracts, which is the threshold at which traders must provide more information about their positions. The new policy comes into effect on January 13 and is aimed at reducing market volatility.
“If you read the circular in simple terms, non-commercial players will probably have to comply with the level of accountability by Monday. I understand the logic of this decision, but whether it will achieve the ultimate goal of the exchange – reducing volatility – we will see later,”
– commented Jonathan Parkman, Head of Agricultural Sales at Marex Group.
It is important to note that this update does not mean that trading companies that have positions above the accountability levels should liquidate them. Such positions can be fully justified by the need to hedge risks for physical volumes of cocoa.
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Chocolate prices
Cocoa showed the largest growth among major commodities in 2024, outpacing even the growth of the US stock market and bitcoin. Prices for the main ingredient in chocolate more than doubled in 2024, reaching a new record high in December.
Thus, cocoa futures in 2024 rose by about 185%, while bitcoin grew by about 128% and the S&P 500 index (500 largest companies) by only 25%.
The key factor behind this growth was the unfavorable weather in Côte d’Ivoire in West Africa. The marketing year 2023-2024 for cocoa ended with the largest global supply shortage in 60 years.
In West Africa, unfavorable weather continues to affect cocoa production.
At the same time, despite historically high prices, consumer demand remains strong. According to experts, chocolate, like coffee, is one of those products that consumers are reluctant to give up – it is an exemplary example of inelastic demand.
Therefore, despite a slight drop in prices on the stock exchanges, experts do not currently predict a fundamental and tangible reduction in the price of cocoa and, accordingly, chocolate.
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