Cocoa surpasses $10k a tonne as shortages squeeze 'out of control' market
ft.com
ft.com
The reasons for the lower production include drier weather due in part to climate change, a resurgence of the swollen-shoot disease that affects cocoa plants, and illegal mining affecting land on which cocoa is grown.
[1]. https://www.fastcompany.com/91065690/cocoa-beans-production-...
Climate change is definitely a thing, but you cannot know whether this dry streak is due to climate change.
Ok, fine. Maybe there's a 0.000001% chance this has nothing to do with climate change (caused by man made global warming at that) & is just a temporary aberration. It's only 99.99999% certain.
Is that vanishingly impossible probability worth hopping in to defend? Is it? Do we have to suffer this, every time someone mentions climate change? Why be a denialist? What makes it worth considering this anti-stance for even a second? Why bank so much on the shadow of a doubt?
https://www.csiro.au/en/news/all/articles/2023/may/climate-c...
Could it be because of climate change ? Maybe. Probably.
Will that assertion feed denialists because it is not concrete ? I think so.
> I wish
No need to wish, instead give farmers cell phones, commodities trading websites localized to their language, and bank accounts.
Very few family farms still exist. I know one from northern Maine, and they sure as hell don't seem to do better when potato prices go up, because well, they don't have any potatoes to sell when potato prices are up, because potato prices are up when they don't have any potatoes to sell!
> No need to wish, instead give farmers cell phones
The people doing the farming in the USA are rarely the people who make money from the farms.
Some people like to throw out the fact that almost 90% of farms in America are small (<$350,000/year) family-owned and operated farms. But that 90% of farms accounts for only 20% of total farm production, and over 90% of their household-income came from non-farming activities (spouse working other job = 90% of household income for small farms).
The ~5% of farms which are the largest farms account for about 60% of gross farm production in the USA. These few farms employ about 2 million hired farmhand laborers - generally you won't see the farm owners doing fieldwork.
Currently 50% of Iowa farmland is owned by the 8.7% of farms that are large enough it would take between 20 days to 6 months to harvest with a single combine (the 200 very largest farms are 7700 acres on average, a combine harvests 50-75 acres of corn per day). Some of these farms you’d likely want 10+ combines to harvest corn in the peak window.
So these farms are looking at $10-100 million in farmland alone, and another $1-10 million in combines.
An acre of Iowa cornfield costs $11,400 and yields $170-350 profit per acre depending on the year. Profits are on the low end right now. So the smaller “large farms” that start at 1,000 acres would be expected to earn a profit of $170,000-350,000 per year on $10 million of land.
https://www.thegazette.com/agriculture/2022-ag-census-five-t...
https://www.nass.usda.gov/Publications/AgCensus/2022/Full_Re...
https://www.farmprogress.com/crops/iowa-farm-margins-tighten
Go to: https://tradingeconomics.com/commodities and randomly click on different Agricultural commodities, and switch to a 5 year view.
So far every single one I looked at had spikes of this type. A lot of them were during COVID though, so maybe my argument isn't great. But a lot of them weren't.
And to answer your question: The farmer will benefit at least somewhat because it means 100% of his crop can get easily sold because everyone is desperate for supply. He won't get the full amount of the rise, but some part will go to him.
> some poor farmer somewhere is seeing a windfall?
Think about what that would mean. To get such a windfall also means the farmer is completely exposed to the risk when the price goes down. Instead farmers will typically sell a year in advance, they won't get the rise, but they are also shielded from a fall. You can't have one without the other.
One of the prime motivations for putting cell service in poor countries is to give farmers access to the commodities market. They can sell futures, backed by their crop, or buy crop insurance, etc.
If you want to help a poor farmer that's probably the best thing you can do: Make a way for them to access, and interact, with the commodities market for what they grow.
The reasons for the lower production include drier weather due in part to climate change, a resurgence of the swollen-shoot disease that affects cocoa plants, and illegal mining affecting land on which cocoa is grown.
[1]. https://www.fastcompany.com/91065690/cocoa-beans-production-...
Cocoa is a treat, with prices that high demand should plummet.
By construction the future will "collapse" to the cash price at expiration (modulo carry costs) meaning that the future is exactly representing the market consensus on future price.
This is no different than a stock market where a stock's theoretical price is the consensus on discounted future cash flows of the company. If a stock had an expiration date then it would have to collapse to the "cash price" (e.g. the exact discounted cash flow) at expiration otherwise funny arbitrage things happen.
May 2024 futures are also up almost the same amount.[0] You can call that betting on the future but it's a big stretch. It's obvious that it is largely reflecting the current market price.
[0] https://www.barchart.com/futures/quotes/CCH24 (takes some time to load)
This is entirely due to the limit mechanism that tries to keep prices approximately in line with supply and demand. There have been several instances of grains in particular locking limit up during a blight over and over again. In recent history oil going negative is another example. If it wasn't for the limit mechanism (and in some cases, the literal government) stepping in they absolutely could 100x. When you're a goods supplier you'll pay nearly anything once prices reach your "uncle" level. The dynamics at limit are somewhat interesting as it's a case where the entirely market has consensus that "I need to buy (sell) now or I'm hosed".
I wasn't suggesting you were saying you couldn't speculate on commodities. I was mostly suggesting that even removing traders the "speculation" occurring is due to the anticipated future value of that commodity. If it wasn't, then buyers and sellers would go to the cash market which while extremely volatile may also be a smart choice for at least some of the crop.
IMO limit mechanisms are not nearly aggressive enough and I've been caught in a few of them myself. One of the few rare nightmare scenarios for a commodity trader. But making limits more aggressive would imply some form of price control which also would not be great.
But my point is I believe the prices changes are driven by speculation, and not caused by supply fundamentals.
>Cocoa futures ended Thursday at $5,635 a metric ton, shooting past the old record of $5,368, which was set in July 1977. Bad growing weather in West Africa is to blame this time as well as then.
>Hot and dry weather in Ghana and the Ivory Coast bedeviled growers in the region last year and threaten the cocoa crop again this year, said Jack Scoville, futures-market analyst at Price Future Group.[0]
[0] https://www.wsj.com/livecoverage/stock-market-today-dow-jone...
Cocoa is very elastic, so an 11% reduction in crop should not lead to a 300% increase in prices. The normal thing instead would for people to eat less chocolate until there is enough supply, with only minimal change in prices.
Instead there's something weird going on - tell me, would you buy a chocolate snack that costs 3 times as much as last year? Or would you buy a different snack instead?
>The normal thing instead would for people to eat less chocolate until there is enough supply
The cost of cocoa is not identical to the cost of chocolate.
>Based on a 200g milk chocolate bar costing €2, cocoa comprises around 10 percent of total costs; sugar 1 percent; milk products 6 percent; production, packaging and marketing and profits around 78 percent and tax 6 percent. [1]
This means a 3x increase in prices would make the bar cost €2.60. There are also products that use only small amounts of chocolate, reducing the total increase even further. For example the increase in chocolate costs in a chocolate chip cookie is negligible.
Usually reports on "prices paid to farmers" take longer to put together and publish. This was a recent spike in futures market prices, so it will be awhile before you can find reports on the effects on how much farmers are paid.
But how much farmers are paid can still be a very regional thing, depending on logistics options available for getting the crop to market.