If you think chocolate prices this Valentine’s Day were more expensive than usual, it’s not you. The price of cocoa , the key commodity used in chocolate, hit a record high last week at $5,798 per ton. Year to date, futures contracts are up nearly 27%, with cocoa prices rising in six of the past seven weeks. Those gains have been driven by major weather changes that have raised supply concerns for the commodity. Adding to those worries is an outbreak of cacao swollen shoot virus, which has compromised a chunk of global cocoa supply. “The changing weather patterns means that the potential yields of cocoa are now permanently impaired,” Humza Hussain, a commodities analyst at TD Asset Management, told CNBC last week. These gains can be a double-edged sword for chocolate makers such as Hershey and Mondelez . On one hand, they let these companies raise prices. On the other, in some cases, it may force them to raise prices beyond what consumers are willing to pay, leading to a sales blow. Here’s a breakdown of what’s driving cocoa prices higher and how it impacts the investment case around two major chocolate stocks. Weather and other factors Dry weather conditions induced by El Niño in Ghana and the Ivory Coast â the two main cocoa-producing regions of the world â have recently threatened local soil moisture levels. Therefore, an especially intense El Niño effect could reduce the amount of arable land available for cocoa cultivation , threatening the crop’s production yield. Compounding the problem are the reported wildfires in Nigeria that could potentially damage the area’s cacao crops, Citi analyst Aakash Doshi wrote. But even more than adverse weather patterns, rising cases of the cacao swollen shoot virus have impaired cocoa supply in the past six to nine months. “The prospects of ENSO [El NiñoâSouthern Oscillation] neutral weather conditions is long-term supportive of a production rebound. But it appears containing the spread of the…
2024-02-17 08:26:00
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