The global cocoa market is reeling under the weight of an unprecedented shortage in the crop, which has led to prices rising to record levels, according to the agency.Bloomberg“.
The agency stated that cocoa prices, which more than doubled in just 3 months, forced traders and chocolate makers to raise more money to cover their deals or exit the market.
According to Bloomberg, cocoa futures rose above $10,000 per ton, which is higher than the price of copper, which led to an increase in the cost of making chocolate.
Poor harvests in West Africa, where most of the world’s cocoa production is grown, contributed to the rise, leading to a shortage for the third year in a row.
“It’s hard to fathom the magnitude of the price rise,” said Pam Thornton, a commodities trader at Nightingale Investment Management. “When you have moves of this magnitude, there are usually casualties, and I’m surprised because I haven’t heard of any casualties yet.”
Bloomberg: Cocoa has become more expensive than copper
Cocoa prices continued to rise, increasing more than $700 per ton in one day and exceeding $9,000 for the first time ever, as a supply crisis sweeps the market and chocolate makers struggle to obtain beans, according to Bloomberg, Monday.
The rise in prices raises fears of a repeat of the “corporate failure” scenario, such as what happened in European institutions during the recent energy crisis, when gas prices got out of control, and governments were forced to rescue institutions, according to the agency.
Bloomberg said that there is a risk that the crisis will continue for a long time, with climate change and crop diseases affecting trees, and growing fears that production in Ivory Coast and Ghana will enter a period of structural decline.
The shortage of cocoa bean supplies has led to a race to secure the beans where they are grown; In Ivory Coast, many traders and manufacturers rushed to obtain supplies by paying farmers higher amounts than the prices set by the government.
Others have turned to smaller producers such as Ecuador and Indonesia, but this will not be enough to secure supplies.
According to Bloomberg, the deficit is expected to reach about 500,000 tons this season, equivalent to about a tenth of the global market, while there will be another deficit of 150,000 tons next season.
Cocoa processing factories are struggling under the weight of high production costs, which has led to their work slowing down or stopping completely in some countries such as West Africa, according to Bloomberg.
According to the agency, the chocolate company “Blommer Chocolate Co” has closed its factory in the US state of Chicago, after 85 years of operation. The Swiss company Barry Callebaut, the largest manufacturer of bulk chocolate, has also decided to lay off 18 percent of its workforce, and is also planning to close a factory in Germany and another facility in Malaysia.
Last January, Barry Callebaut warned of a “widespread impact on working capital requirements in the industry” due to rising costs.
The company said it had taken steps to address those concerns, issuing 600 million Swiss francs ($663 million) worth of bonds to refinance notes maturing in May, as well as increasing a line of credit and securing another loan.
In a related context, BNP Paribas Exane downgraded Hershey’s chocolate production company due to the significant increase in costs.
The agency said the focus has now shifted to the new harvest in West Africa, although supplies will not start until next year, after farmers have had enough time to respond to higher prices and improve production.
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