Bullish Cocoa MarketThe billionaire global cocoa market has been steadily rising since the end of last year. As evidence, we can see that in the last 426 days, cocoa has experienced an increase of 80.14% . This surge can be attributed to various factors, such as an increase in the consumption of sweets that use cocoa as a raw material, especially in China. This is evidenced by The Food Institute, which published an article titled "Treat Yourself 2023," confirming a remarkable 9.8% annual increase in chocolate consumption worldwide. Over the past two decades, chocolate consumption has not only increased but has been a consistent trend that is unlikely to change soon, given the lack of expected changes in overall behavior and dietary habits. Therefore, with the continuous rise in consumption, it is likely that demand will continue to outpace supply, potentially leading to an increase in cocoa prices in the coming months and perhaps years. Hence, the bullish trend in cocoa is likely to persist until various issues related to this commodity are addressed.
Bullish Cocoa Market - Profit Opportunities
As mentioned, we can expect cocoa to increase in value due to rising demand relative to supply. However, this is not the only factor confirming the theory that cocoa will remain bullish for the next few months and possibly years. Several other factors support this theory.
Firstly, the biggest risk to the increase in cocoa prices is that 70% of its production is concentrated in Africa, specifically in West Africa. Another risk is that more than half of the world's cocoa production is concentrated in only two countries, namely Ivory Coast and Ghana, which together represent 60% of global supply according to 2020 data from the Food and Agriculture Organization (FAO) of the United Nations. Because of this, the cocoa market becomes vulnerable to any economic, geopolitical, and environmental disturbances occurring in these two countries, especially after the return of geopolitical tensions in the region. This includes the strengthening of coups, civil wars, and clashes of pro-Russian forces, the weakening of French influence in the region that guaranteed peace and security since the colonial era, the power vacuum in the region without a primary or secondary power to dictate the "rules," and the strengthening of groups such as Tuaregs, Jihadists, and others in the West African region. This geopolitical strife creates a vulnerable situation for Ghana and Ivory Coast, and in the event of war, we can expect further shocks to cocoa prices, as seen during the First Ivorian Civil War, where prices rose by 19% in just 30 days, and the Second Ivorian Civil War, where prices increased by 37% in 98 days. The market was not affected even more because the harvests in both wars had already been sold, harvested, and exported, with France ensuring access to the remaining goods through major ports, allowing cocoa to be shipped.
Another significant risk to the cocoa market is global warming and sudden temperature fluctuations that endanger cocoa plantations, especially in West Africa, where climatic imbalances pose a threat to the two largest producers in the market. Therefore, despite efforts by both countries to modernize and improve the capacity and security of cocoa farms, such projects are expected to take time due to reasons such as corruption, lack of funds, and a shortage of qualified personnel, considering the managerial incompetence of African governments.
Another significant risk, now confirmed, is that due to climate and crop issues, a third global cocoa deficit for the 2023/2024 season is expected by the FAO. In other words, climatic, geopolitical risks, and consumption patterns indicate a high likelihood of cocoa value increase in the coming months and probably years.
