Have you already bought your Easter chocolate? It would be wise to stock up, as chocolate Santas could become even more expensive this year than Easter bunnies. The International Cocoa Organization recently warned that Ghana is facing major challenges in its cocoa sector that require swift action.

Due to the sector’s struggles with aging trees, diseases, low producer prices, and climate problems, cocoa sales in January 2024 dropped by 35% compared to the previous year.

Cocoa price in the last 12 months: +135% Source: tradingview.com

Cocoa was already one of the biggest winners among agricultural commodities last year.

Cocoa supply shortages in Ghana and Ivory Coast could persist. It is not only the declining production in Ghana, but also in Ivory Coast that has driven cocoa prices to historic highs. Contributing factors include weather, smuggling, illegal mining, and a plant disease that has already devastated 500,000 hectares.

Now, there is also concern that El Niño could further impact global production, similar to 2016.

According to the International Cocoa Organization (ICCO), the supply shortages and ongoing Harmattan winds could further drive up prices.

Another long-term factor that could affect cocoa production in Ghana is the upcoming EU regulation on deforestation. This could lead to a further decline in production if farms do not comply with the regulations and their products are not accepted.

In line with this, last week, the Ghana Cocoa Board drastically lowered its production forecast for 2023/24 to only 650,000-700,000 tons – the lowest in 14 years. Some Ghanaian farmers will not be able to fulfill their contracts for the second season in a row. This is a major concern for the world’s second-largest cocoa producer.

Additionally, Ivory Coast, the world’s largest cocoa producer, has now halted all forward sales for 2024/25 until a realistic production estimate can be determined due to the turbulent conditions. The Ivory Coast regulatory body expects production for 2023/24 (the harvest year ended in September) to decrease by 21.5% compared to the previous year, reaching a low of 1.75 million tons – the lowest in 8 years.

Conclusion: Cocoa market problems – beware of chocolate producers The cocoa market is facing major structural problems that are not likely to be solved anytime soon. Adding to this, the weather forecasts do not bode well for the near future. Although cocoa prices have already experienced a rally, the existing problems in the highly concentrated cocoa market are immense.

It is undeniable how deficient this market currently is and how poor the prospects are for a rapid recovery of supply.

This could be problematic, especially for chocolate producers like Hershey’s, Mondelez, or Nestle. Investors should be cautious.