The price of cocoa beans (Kakao), which recorded an all-time high last year, continues to soar this year. Cocoa beans, the main ingredient in chocolate, showed the worst harvest last year due to worsening climate conditions and pests, and the futures price in December hit $12,906 per ton, a record high.
Global market analysis companies cautiously forecast that the futures price of cocoa beans will decline this year as conditions in major Kakao-producing regions improve somewhat. In fact, an analysis of climate data collected by satellites indicated that the growing conditions in West Africa, a major Kakao-producing area, have improved. However, it was revealed that abnormal precipitation in some areas at the beginning of the year continues to pose a threat from pests.
On the 4th, domestic satellite corporation NaraSpace released results analyzing the temperature and precipitation in the West African region, where the major Kakao production areas, Côte d'Ivoire and Ghana, are located, using satellite and weather data.
Cocoa, used as a raw material for chocolate and confectionery, is a product made from roasting and drying cocoa beans at 120 degrees and then grinding them to maintain a consistent moisture and fat content. Cocoa, once processed, is treated as a transaction item traded in futures form because its quality and content become stable. To understand the changes in the futures price of cocoa beans, one must observe the changes occurring at the production sites.
Currently, 70% of the world's Kakao production comes from West African countries such as Côte d'Ivoire, Ghana, Ecuador, and Nigeria. Côte d'Ivoire and Ghana account for 40% and 20% of the market, respectively. According to the International Cocoa Organization (ICCO), Ghanaian cocoa, known for its high quality, receives a significant premium in the U.S. and European markets. In contrast, cocoa from Côte d'Ivoire is traded at a lower proportion due to oversupply and the effects of climate change.
Precipitation and temperature are critical factors influencing Kakao production and harvest conditions. The NaraSpace Earth Paper Team analyzed the recent climate conditions in Côte d'Ivoire, a major Kakao-producing country, where there are significant differences in the frequency and intensity of rainy seasons, compared to Ghana, where rainy and dry season patterns are relatively distinct and simple.
The analysis team used the 5th generation medium-term weather forecast (ERA5) model developed by the European Centre for Medium-Range Weather Forecasts, which has collected temperature, wind, and humidity analysis data from around the world since 1940. Furthermore, they utilized daily rainfall monitoring data (CHIRPS—estimation of rainfall via rain gauges and satellite observations) collected from observation stations and satellite images for over 30 years from 50 degrees north to 50 degrees south.
Ghana is more sensitive to climate than Côte d'Ivoire
The analysis team confirmed that Côte d'Ivoire received less rainfall during the rainy season from July to September 2023 compared to 2020-2022. They also found that the monthly average temperature during the same year's July to October was higher than in the previous years, indicating severe drought conditions. Kakao fruit grows well in warm and humid environments during its growing season. Excessive heat and dry conditions can weaken crop immunity and create an environment conducive to the spread of pests. Consequently, this climatic environment is interpreted to have led to a Kakao supply shortage last year, resulting in price increases.
During the same period, neighboring Ghana has also shown that it could not escape the severe impacts of climate change. Ghana has been evaluated as managing agricultural practices and climate adaptation relatively stably compared to Côte d'Ivoire.
However, after a drought occurred in the second half of 2023, the situation changed with the El Niño phenomenon occurring in the first quarter of last year. El Niño is a phenomenon characterized by rising sea surface temperatures in the Eastern Pacific. This heat wave condition arose, and as rainfall surged in March during the harvest season, the average temperature from January to July was higher than in 2020-2023, creating conditions conducive to pests. The spread of black pod disease, which causes mold on Kakao fruit pods, significantly increased Kakao prices last year.
Outlook for production increase, bullish outlook for futures in the short term
The growth periods and harvesting times of Kakao beans vary slightly by production area. In West Africa, they primarily grow from April to October and are harvested from October to March of the following year. Since approximately 70-80% of the total production is harvested during this time, the weather conditions from January to March have a significant impact.
Côte d'Ivoire is significantly affected by the climate crisis due to the harmattan wind (northeast trade winds) blowing from the Sahara Desert and unpredictable weather. Last year, although high-temperature and dry climate conditions occurred, they did not significantly affect the futures price of Kakao. However, Ghana, which had relatively stable agricultural conditions during the same period, suffered greatly from the impacts of the climate crisis. The analysis team suggests that changes in weather last year contributed to the surge in cocoa futures prices.
From January to February this year, average temperatures in the West African region showed a recovery in average values. According to container news and other reports, cocoa bean production is expected to increase, ending a three-year supply shortage, and prices are projected to decline.
However, due to the decreasing global cocoa stockpiles and ongoing uncertainties from remaining climate anomalies, Kakao prices are not easily declining. The highest historical price for cocoa beans before 2024 was $5,104 per ton in 1977. Last year, the deterioration of Kakao harvests led to a price spike of $11,461 per ton in April and surged to $12,906 in December. Since the beginning of this year, prices have hovered between $7,721 and $11,137, currently maintaining around $10,000.
U.S. tariff policies also appear to be impacting cocoa prices. ABC News reported that the U.S. government's tariffs are burdensome for coffee and chocolate business owners. Although tariffs have not caused cocoa prices to soar, they are contributing to a situation where overall commodity market conditions could keep prices elevated for an extended period.
The Earth Paper analysis team noted, "In March, the rainfall in the Ghana region has shown an abnormal increase. If excessive humidity continues to lead to pest issues alongside low inventory levels, it's predicted that cocoa prices will be difficult to lower in the near future."
Major confectionery companies using cocoa are also facing emergencies. The stocks of these corporations are moving inversely to futures prices. The world's fifth-largest chocolate manufacturer, Hershey, indicated in its first-quarter earnings report that it has lowered its adjusted earnings per share (EPS) outlook, citing "rising cocoa prices, tariffs, and logistics costs" as major challenges. Another chocolate manufacturer, Mondelez International, projected a 10% decline in EPS as cocoa ingredient costs hit all-time highs.
Market analysis companies predict that global cocoa prices will gradually trend downward due to oversupply in 3-4 years. According to Dutch multinational bank Rabobank, cocoa production is expected to recover in 2024-2025, leading to a gradual decline in prices. However, experts foresee that prices will remain elevated compared to levels before 2023.
Experts warn that the Kakao agriculture might shift beyond Côte d'Ivoire and Ghana, posing a risk of oversupply and potentially leading to a price crash in 2027-2028.
The Earth Paper analysis team stated, "Through a close analysis of the climate in West Africa, we can continue monitoring changes in cocoa futures prices."
References
NaraSpace Earth Paper, https://ep.naraspace.com/
With the development of low-cost space launch vehicles and small satellite technology, we have entered an era where we can monitor events on Earth in real-time. Satellites are now used in various areas, including defense, disaster monitoring, damage assessment, and industrial trend analysis. ChosunBiz will release a space journalism series titled 'The World Through Satellites' and 'The Economy Through Satellites,' analyzing satellite image data in the context of defense, industry, economy, society, and international news in the era of space economy, in collaboration with domestic satellite service corporation NaraSpace.
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