Dive Brief:
- Cocoa's market price continues to slide, reaching $2,322 per ton as of Dec. 6, which was the commodity's lowest price since August 2013, Seeking Alpha reported.
- Cocoa's volatility has been significantly higher than many other commodities in recent years because increased demand for chocolate confections in China had at one point pushed a prices higher, despite currency differences.
- Brexit has also impacted cocoa prices because London is a major hub for the commodity. It is the closest business center to West African growers and the home of an active cocoa futures contract that trades on the Intercontinental Exchange in pounds sterling.
Dive Insight:
Cocoa producers — particularly in Ghana and Ivory Coast, which produce more than 60% of the annual global output — faced a series of hardships in recent years that impacted yields and prices. From enduring dry winds and black pod disease to spikes in consumer demand for chocolate products worldwide, the global cocoa supply began to dwindle.
This led to rumors of a potential cocoa shortage that came to a head earlier this year. Now experts believe that conditions have improved enough to enable West African cocoa harvests to bounce back, alongside increased outputs from Peru and Indonesia.
Manufacturers and retailers that use cocoa in their products have both benefited and struggled with this particularly volatile commodity in terms of pricing adjustments. Lower commodity prices often at least temporarily boosts profits for companies.
But consumers often fight back against price adjustments, as Smucker learned when it raised prices for some of its coffee brands after coffee bean prices soared due to dwindling harvests. Hershey cited rising cocoa and dairy costs as the reason it had to raise prices on candies in 2014.
While it's key for manufacturers to remain profitable, they have to balance pricing adjustments with consumer sentiment and the risk of backlash. Lower profits based on product sales with higher costs and smaller margins may arguably be better than less profits due to lower sales of products with higher prices and margins.