cocoa futures

cocoa futures

July 23rd, 2014

Cocoa futures rose to a three-year high as heavy showers in West Africa boosted concern that harvests won’t meet rising demand, signaling higher costs for chocolate makers including Hershey Co.

As much as triple the normal amount of rain fell in the past month in Ivory Coast, the world’s top grower, and Ghana, the second-biggest. That increased the chances of disease and deteriorating crop quality, according to Gaithersburg, Maryland-based MDA Weather Services.

Futures have jumped 18 percent this year as chocolate consumption rose in Asia and North America. World demand for confections and cocoa products has doubled in the past 20 years, and farmers are struggling to keep up, Kevin Petrie, the chief procurement officer for Nestle USA Inc., said this month. Hershey said last week that it was raising wholesale prices by 8 percent, citing higher ingredient costs.

“Prices are on a tear higher the last few days, likely due to the fears of heavy rains damaging the cocoa yields in West Africa,” Hector Galvan, a senior commodity broker at RJO Futures in Chicago, said in an e-mail. “Moreover, the idea of increasing demand continues to give investors reason to believe that higher prices can be justified.”

On ICE Futures U.S. in New York, cocoa for September delivery rose 1.7 percent to close at $3,185 a metric ton, the biggest gain for a most-active contract since June 27. The price reached $3,204, the highest since July 20, 2011. The commodity climbed for the fifth straight session, the longest rally since May 27.

Cocoa Futures: Trading Jumps

According to data compiled by Bloomberg, aggregate trading today more than tripled compared with the 100-day average to an estimated 70,628 contracts, the highest since June 6, 2013.

The Cocoa Association of Asia said bean grinding, an indication of demand, rose 5.2 percent in the second quarter from a year earlier. Processing jumped 4.5 percent in North America, the National Confectioners Association said July 17.

“Commodity spot prices for ingredients such as cocoa, dairy and nuts have increased meaningfully since the beginning of the year,” Hershey said in a statement on July 15. “We expect significant commodity cost increases in 2015.”

- Fareeha Ali in Chicago and Marvin G. Perez in New York at Bloomberg.

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