Shah Nitesh WisdomTree

WisdomTree : Taking stock of cocoa prices as Easter comes

WisdomTree: This time last year, chocolate and confectionary prices were rising in the UK, as cocoa prices spiked in the first quarter of 2018 (+35% in Q1 2018). Cocoa prices have fallen since then (-10.8% since March 2018), but don’t expect your Easter eggs to get cheaper!…

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By Nitesh Shah, Director, Research

Although cocoa is a key ingredient, it is not the only ingredient in an Easter egg. More of an egg’s cost is likely driven by marketing and distribution costs than the ingredients itself. A depreciating Sterling is also likely to have driven the price of ingredients higher in local currency terms.

Cocoa supply and demand

The International Cocoa Organization (ICCO) expects a 3.2% increase in 2018/19 production of cocoa.

The 2018/2019 season is now largely complete, but final data is still not available. Grindings are also rising, which will leave the stocks-to-grinding ratio roughly flat at 37.6%.

According to the ICCO, Côte d’Ivoire, the world’s largest producer is about to top its record cocoa production established during the 2016/17 crop year at 2.020 million tonnes.

But that failed to pull cocoa prices significantly lower because in February 2019 concerns over above-average temperatures and fears of Harmattan winds (dry desert winds) in West Africa tempered market expectations of any upside production surprises.

What about el Niño?

We are currently in an El Niño weather event, which has historically been positive for cocoa prices.

However, the event is too weak to have noticeable weather impacts in West Africa (the largest producing area).

As we enter the mid-season crop harvest period in May, we expect less price volatility than we have seen in recent months, given the smaller scale of the crop (the mid-season crop is 15-20% of the total).

16-4-19 WT COCOA


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