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Cocoa and orange juice futures reach all-time highs. Is it all because of this heat?

Commentaries & Views

The scorching heat is sweeping across the globe. It’s so hot that in some regions, even asphalt leaves burns. With such extreme temperatures, it's tempting to stay home and indulge in a refreshing combination of orange juice and chocolate. If that’s how you think, you might just be a billionaire discussing the prospects of Threads with Elon Musk and Mark Zuckerberg. Because… have you seen the news? The news is abuzz with cocoa and orange juice smashing price records. Let's delve into the reasons behind this surge.

The main culprit behind the price hikes is the heat wave caused by the El Niño phenomenon, affecting farms and plantations, thus putting enormous pressure on the entire agricultural sector. However, weather conditions are not the only factor influencing markets, there’s also various economic events to consider. To navigate markets successfully, it’s important to keep a close eye on such events, and you can do that using economic calendar

Well, what about chocolate or, more specifically, cocoa futures? The chart below demonstrates that this commodity has grown by 37% since the beginning of the year.

Cocoa might not be an asset you frequently check. So, it may be hard to estimate whether such growth is excessive or not. That’s why we’ve prepared one more chart, indicating that cocoa prices have reached these levels only for the second time in this century.

The reason for this last months’ hike is opposed to the prevailing heatwave. Heavy rainfalls in West Africa are contributing to the exceptionally speedy spread of black pod disease, which causes pods to rot and blacken. In other words, we may experience a cocoa deficit in 2023-2024, further driving up chocolate prices. Extreme heat may also cause additional damage after rains, but it has not done so yet.

In the case of orange juice prices, the surge is not directly tied to the heat but rather linked to some other disease – citrus greening disease. It has already spread in Florida, an important region for orange juice production. And there are concerns about its potential spread in Brazil, one of the world’s leaders in this segment. Some local manufacturers already report possible supply troubles. 

So, the orange juice futures market is not calm either. The next chart reveals a general scenario where prices have surged by over 50% since the beginning of 2023.

If you don’t like how much money has been written off from your bank account when you bought a small juice pack and a chocolate bar, at least now you understand the reason behind it. But if you also engage in agricultural futures trading, you may find opportunities to profit based on how the situation develops. However, it's crucial to conduct thorough analyses and make well-informed decisions to succeed in this endeavor.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.