Friday, June 07, 2019

What Chocolate Shortage? Cocoa Prices Steady as Record Output Projected

Supply concerns made cocoa the best-performing commodity of 2018

By Kirk Maltais of The WSJ. This is what we predict in economics, that if sellers anticipate higher prices in the future, they will begin taking steps to increase supply when the higher prices are supposed to arrive. If this is a competitive market, supply will keep increasing until price falls enough so that we move back to an average rate of profit. The article indicates that this happened.

"The world appears to have averted a chocolate shortage, upending the rally that made cocoa the best-performing commodity in 2018.

Last year, prices of cocoa futures soared by 28% on repeated warnings by analysts that chocolate would be in limited supply in 2020 because of a scarcity of cocoa beans.

But cocoa prices are relatively unchanged since the start of 2019. As of Tuesday, they were trading on the Intercontinental Exchange in New York at $2,360 a metric ton, down 2.3% this year.

Prices have steadied as weather in major cocoa-growing regions has been conducive to production. Supply is outpacing demand for a third year in a row, according to the latest projections from the International Cocoa Organization."

"The predictions of a cocoa shortage weren’t based on sound science, said Jeff Rasinski, director of commodities and corporate procurement at Blommer Chocolate Co."

"Higher production partly came about as corporations made changes to their cocoa supply chains.

Reacting to the reports of a looming shortage, Mondelez International Inc. began a program in 2012 that helped farmers in six cocoa-growing nations learn to grow more efficiently."

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