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How record warm global oceans are making Chocolate prices “cuckoo"

Best Weather Inc. - Thu Sep 14, 2023

 (CCZ23)(GIS)(HSY)(MDLZ)(NSRGY)(DNUT)(PNRAX)(UL)(WMT)(KR)(COST) 

“How the record warm global oceans are making Chocolate prices “cuckoo"

by Jim Roemer - Meteorologist - Commodity Trading Advisor - Principal, Best Weather Inc. & Climate Predict - Publisher, Weather Wealth Newsletter 

September 14, 2023

   

The phrase “Cuckoo for Cocoa Puffs” is a Registered Trademark owned by General Mills (GIS) 

CLICK HERE to watch a 1960s TV commercial advertising Cocoa Puffs

  • Jim Roemer's video traces cocoa's exploding price trend back to the root causes: weather and climate

This video talks about how El Niño and record-warm ocean temperatures are making your chocolate more expensive)

Here is my take on how rising cocoa prices may impact various companies, and industries in this marketplace. Understanding these dynamics can be essential for informed decision-making. Again, I mainly follow physical commodities, but, if you invest in equities, you might have a look at certain companies for which the bottom line can be impacted by the year-to-date 45% cocoa price increase. 

It has remained very wet with disease issues in parts of West Africa since summer and now some potential harvest delays. This is a major crop-impacting issue for cocoa and something I have been worried about and forecasting since June.

C L I C K    H E R E   to View Jim's Video

The video above addresses:

  • The record-warm ocean waters around West Africa and in the Atlantic continue to increase moisture and lack of sunshine hurting cocoa pods. 
  • Disease issues have been rampant in West Africa all summer, 
  • Heavy rains brought on by El Niño and climate change are delaying the main crop harvest. 

Below is a list of some of the industries and participants in the sector that can be affected by higher cocoa prices. 

(Note that some of these are private companies and cannot be considered investment opportunities)


Physical Cocoa and Chocolate Business Entities - Companies like Hershey (HSY), Mars, Mondelez (MDLZ), Ferrero, and Nestle (NSRGY) are directly affected by high cocoa prices as they face increased input costs, which can put pressure on their profit margins. Cocoa growers and traders such as Olam (OLAM: SP) are crucial in sourcing raw cocoa globally, and they experience the direct impact of cocoa price movements.

Cocoa Processing Companies - Businesses like Cargill, Barry Callebaut, Blommer Chocolate, and Touton play a critical role in processing raw cocoa into ingredients for food companies. They, too, are impacted by the price fluctuations in cocoa.

Confectioners - Lindt, Godiva, Russell Stover, and Ghirardelli face higher costs for this key ingredient, which affects the profit margin in making their confectionery products.

Bakeries - Companies such as Krispy Kreme (DNUT), Panera Bread (PNRA), and Dunkin Brands (DNKN) are affected as high cocoa prices influence the costs associated with these products.

Frozen Dessert Producers - Businesses like Unilever (UL) and Blue Bell, known for their ice cream products, must contend with cocoa butter and cocoa powder price fluctuations.

Retailers - Giants like Walmart (WMT), Kroger (KR), and Costco (COST) may need to decide whether to absorb higher prices themselves or pass the increased costs on to consumers.

Cocoa ETFs - Notably, exchange-traded funds (ETFs) like NIB, used to track cocoa futures prices, and CHOC, which invests in cocoa companies, provide investment opportunities tied to the cocoa market. However, this NIB was retired this past June.

In summary, rising cocoa prices have a cascading effect. While they can boost revenue for global cocoa suppliers and traders, they often squeeze profit margins for manufacturers in the chocolate business, who probably constitute the hardest-hit links in the chain.  


Cocoa, coffee, cotton, sugar, and grain commodities are all being affected by El Niño and are discussed frequently in my newsletter


Cocoa is a commodity often featured in my WeatherWealth newsletter and you can receive a 2-week free trial period here and find out which investing strategies we have, not only for cocoa but also for grains and other soft commodities. http://www.bestweatherinc.com/welcome/

Thanks for your interest in commodity weather!

Jim Roemer, Scott Mathews, and The Weather Wealth Team 

  • Please feel free to learn about Jim Roemer, our track record, and how we use weather to help traders on six continents. If you have any questions, please don't hesitate to drop me a line  - Scott Mathews, Editor

Mr. Roemer owns Best Weather Inc., offering weather-related blogs for commodity traders and farmers. He also is a co-founder of Climate Predict, a detailed long-range global weather forecast tool. As one of the first meteorologists to become an NFA registered Commodity Trading Advisor, he has worked with major hedge funds, Midwest farmers, and individual traders for over 35 years. With a special emphasis on interpreting market psychology, coupled with his short and long-term trend forecasting in grains, softs, and the energy markets, he established a unique standing among advisors in the commodity risk management industry.

Trading futures and options involves a significant risk of loss and is not suitable for everyone. Past performance is not necessarily indicative of future results. There is no warranty or representation that accounts following any trading program will be profitable.

“You can't change the weather, but you can profit from it”


 


On the date of publication, Jim Roemer did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.