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Cocoa Market in Turmoil Amid Supply Crunch: Financial Times

The global cocoa market is facing significant challenges as traders grapple with a severe shortage of cocoa beans and skyrocketing costs for securing long-term supply contracts, according to a report by the Financial Times.

The report highlights the extreme volatility in cocoa prices, with recent plunges of over 25% followed by sharp rebounds, reflecting the market's struggle to manage the supply shortfall. The cost of cocoa has surged dramatically over the past year, with New York cocoa futures reaching an all-time high above $12,000 per tonne in April – more than four times higher than a year earlier. This price surge is primarily attributed to poor weather, disease, and structural issues in West Africa, the source of approximately two-thirds of the world's cocoa beans.

"The wild swings and sharply diverging prices are a sign of market volatility and stress following successive poor harvests in Ivory Coast and Ghana, which supply around two-thirds of the world's cocoa," the Financial Times report states.

Fears over long-term supply have triggered a rush among chocolate manufacturers and other cocoa buyers to secure shipments as quickly as possible. This has put immense pressure on longer-term futures contracts, as traders increasingly doubt the ability of Ghana and Ivory Coast to deliver the promised cocoa beans.

"Traders say the rollercoaster moves are putting most strain on longer-term futures contracts, with traders increasingly fearing that both Ghana and Ivory Coast will not be able to deliver the beans they have promised," the report explains.

A contract to deliver cocoa beans in May 2025 is trading at $6,925 per tonne, despite the market's belief that the cocoa industry's supply issues will not be easily resolved. Adding to the concerns, open interest in cocoa futures – a key measure of market depth – has plummeted to below 290,000 lots, the lowest level in two years.

Both Ghana and Ivory Coast have increased the prices paid to farmers in an attempt to incentivize investment in plantations and boost yields. However, this has caused friction with international trading houses, who fear they may be forced to pay significantly higher prices than previously agreed upon due to potential delivery deferrals.

"The price increase has irked international trading houses. With delivery of hundreds of thousands of tons of beans potentially being deferred until the next harvest, traders fear they may be asked to pay much higher prices than they had previously agreed," the report notes.

The disparity between global market prices and the fixed prices paid to farmers in Ghana and Ivory Coast is also driving smuggling into neighboring countries with free markets, further exacerbating the cocoa bean shortage.