Overview of the Commodity Market – Coffee and Cocoa

Cocoa and coffee prices soared in 2024 by some 180% and 70%, respectively, fueled by supply chain disruptions, adverse weather, and surging global demand. While stabilization is on the horizon, weather condition uncertainties and geopolitical tensions suggest these markets will remain highly volatile and unpredictable.

Let’s start with cocoa prices which soared to their highest level in over a decade last year, with an astounding 180% increase, even outperforming Bitcoin’s gains. This surge was driven by the largest global supply deficit in six years. Poor weather conditions in key producing countries such as Ivory Coast and Ghana – together with other West African nations, accounting for more than 70% of global cocoa production – resulted in disappointing harvests. The situation was further exacerbated by aging cocoa trees, slower rates of new planting, and the rise of crop diseases.

Cocoa Price Development in 2024 (Indexed to 1 Jan 2024 = 100)

Source: Bloomberg, InterCapital Research

Consequently, the global cocoa stockpile has dwindled to its lowest level in over a decade, marking the third consecutive year of deficit and heightening concerns across the market. While the 2024/2025 season holds promise for a potential recovery and future prospects appear brighter, uncertainties surrounding weather developments in West Africa continue to loom. Emerging cocoa producers in Latin America are expected to help alleviate the burden on traditional suppliers over the next two seasons, though their impact remains uncertain and may take time to be felt.

Coffee prices also surged in 2024, rising by approximately 70% and reaching an all-time high. Adverse weather conditions in major coffee-producing countries, such as Brazil and Vietnam, were key drivers of these increases. Brazil, the largest producer of Arabica coffee, faced severe droughts and wildfires in critical growing regions like São Paulo. Meanwhile, Vietnam, a leading producer of Robusta coffee, experienced prolonged droughts, resulting in low soil moisture levels, even after rains. These conditions caused coffee trees to produce too few flowers but too many leaves. Additionally, significant damage from typhoons further tightened global supplies, which were already strained due to still ongoing recovery from the pandemic, as well as geopolitical challenges, such as Middle Eastern unrest. Adding to the supply-side pressures is the rising global demand for coffee, particularly in large markets such as China.

Arabica and Robusta Coffee Prices Development in 2024 (Indexed to 1 Jan 2024 = 100)

Source: Bloomberg, InterCapital Research

Both cocoa and coffee prices are likely to remain volatile due to global trade uncertainties, including the high possibility of a trade war in the wake of tariff threats. However, as demonstrated by companies like Atlantic Group, Lindt and others, demand for coffee and cocoa appears inelastic, with volumes of related products continuing to increase despite rising prices.

Projections for 2025 and 2026 suggest relatively positive market conditions, with prices expected to stabilize and slightly decrease. However, these projections could quickly be overturned by worsening weather conditions or new supply chain disruptions, underscoring the continued unpredictability in these markets.

Marin Orel
Published
Category : Blog

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