The cocoa boom

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Susannah Savage (0:33)

Pushkin.

Katie Martin (0:36)

Not to worry anyone, but have you seen the price of chocolate recently? Cocoa prices have exploded higher in 2024 They're about three times the price that they were this time last year. And obviously, that's a really important input into the price of your favorite choccy bar. Today on the show, we ask, is nothing sacred? What is going on with food prices?

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the Financial Times in London, and I'm joined for the first time by commodities nerd, Susannah Savage.

That's a compliment, by the way. Thank you, thank you. First up, what is your favorite choccy bar?

Susannah Savage (1:20)

Oh, I don't know. I think I could be really basic and say something like a Kit Kat.

Katie Martin (1:25)

Oh.

Susannah Savage (1:25)

Or Twirl, maybe. Not fancy. The Natural Resources editor, he judges me for the choccy bars I bring into the office.

Katie Martin (1:32)

Uh-huh.

Susannah Savage (1:33)

Frankly, they're only for children.

Katie Martin (1:34)

Harsh.

So, lay it out for those of us who are not commodities nerds. What on earth is going on? Why has cocoa gone so loco?

Susannah Savage (1:46)

It's gone absolutely crazy. So, about a year ago, cocoa prices were around $2,000 per ton in New York.

And that's, you know, decent.

But then, since Christmas really, it's gone absolutely wild. So, at some point, it reached over $12,000 per ton. It's now come back down to over $7,000, which is still really high. But it's incredibly volatile. Even intraday trading is up and down. And this is really driven mostly by what's going on in West Africa. So about two-thirds of the world's cocoa is grown in two countries, Ghana and Ivory Coast.

They've had a whole range of problems, mostly to do with climate change and also the El Nino weather phenomenon. So is it too hot?

Katie Martin (2:28)

Is it too cold? Is it too wet? Too dry? What's going on?

Susannah Savage (2:30)

All of them. So it was too hot when it shouldn't have been and too dry. And then they had loads of rainfall, which helped these diseases spread among the trees, which really affected their yields.

But also they've got lots of structural problems. A lot of the farmers there are really poor. They've not been able to invest in their farms for a long time. So their cocoa trees are really old, which makes them more susceptible to these, you know, changing weather patterns and diseases. And so they're just not yielding as much as they normally would. And that's created a big supply problem.

Katie Martin (3:04)

So there's just not enough cocoa beans out there.

Susannah Savage (3:06)

There's just not enough cocoa beans.

Katie Martin (3:08)

Is this something we just have to get used to, you know, weather is changing, climate is changing, or is there a little kind of dollop on top of this that is about terrible speculators pumping up the cost of your Kit Kats?

Susannah Savage (3:20)

Good question. So definitely one part of this, especially early days of the rally was speculators seeing that this price was just going up and up.

And especially those that use algorithms, they sort of piled into it, made a lot of money, and yeah, definitely helped to push the price up higher.

I would say though, you know, there are real fundamental reasons driving these price increases, and that those are sort of the biggest factor in this.

Katie Martin (3:51)

So I want to sort of think about, you know, who wins and who loses from this whole thing. I mean, how much is the wholesale price of cocoa feeding through to the chocolate that ordinary humans actually buy in the street?

Susannah Savage (4:04)

More than you would think. So if you think about some bars of chocolate that say they're 70% cocoa, you know, a Lindt bar of chocolate, for example, that's quite a lot of cocoa that they've got to find when there's a massive shortage and you can't get hold of the cocoa butter used to make it. And even those where, you know, in a Cadbury's chocolate bar, there's a lot of sugar, there's a lot of milk emulsifiers and things. There's not necessarily a whole, you know, maybe 10% cocoa, I don't know, or something like that, a lower amount anyway.