The Causes, Impacts and Trends of Cocoa and Coffee, the Soft Commodities, Leading the Market for Two Consecutive Years

On the grand stage of the global commodity market, the "soft commodities" cocoa and coffee have been the center of attention for two consecutive years. Their market performance has significantly outperformed equity markets such as US stocks, becoming the focus of numerous investors and industry professionals.

First, let's look at the performance of the cocoa market. The impact of production reduction caused by El Niño has been continuously fermenting. The tropical crop cocoa ushered in a new round of strong upward trends at the end of the year. Its price trend is extremely eye-catching, successfully pushing the all-time high to the milestone of $12,000. As of the relevant statistical date in 2024, the increase in cocoa futures is astonishing. With an increase of more than 180%, it is far ahead among various traditional financial asset classes. ING (Internationale Nederlanden Groep) pointed out clearly in the report to its clients that this round of upward trend does not seem to have an obvious end in sight. The cocoa sales year from 2023 to 2024 will end with the largest global supply deficit in nearly 60 years. This situation provides strong support for the continuous high price of cocoa. According to the latest forecast released by the International Cocoa Organization at the end of November, the global cocoa production in 2024 will have a huge shortfall of 478,000 tons. Compared with the same period last year, the global production this season is expected to drop significantly by 13.1%, and the end-of-season inventory will also decline by 26.8%. Such a severe supply situation is undoubtedly a key factor driving up the price of cocoa.

Next, let's turn to the coffee market. Due to concerns about global supply, the price of Arabica coffee achieved a historic breakthrough in 2024. The price of Arabica coffee futures on the Intercontinental Exchange (ICE) in London once exceeded the mark of $3.5 per pound. Throughout 2024, its cumulative increase was close to 85%. Robusta coffee beans, which serve as a substitute for Arabica, also experienced a substantial price increase driven by a new round of purchasing demand. In 2024, the price of Robusta coffee beans increased by more than 80%, reaching above $5,400 per ton. Such a price trend has made the coffee market perform extremely prominently in the global commodity market.

When delving into the reasons for the price increases of cocoa and coffee, climate factors are undoubtedly the most significant. The main cocoa-producing countries, Côte d'Ivoire and Ghana, are currently facing severe challenges of capacity contraction. The record-high warm ocean climate around the world has further exacerbated the difficulties of cocoa crops in West Africa. The cocoa trees in these regions have become extremely vulnerable under the influence of extreme weather conditions in successive years. In October, the wet weather had a negative impact on the growth of cocoa trees. Subsequently, the arrival of the Harmattan typhoon further damaged the cocoa trees in the main growing areas, resulting in a significant decline in cocoa production.

As for coffee, Brazil, an important coffee-producing country, experienced the most severe drought in 70 years in August and September 2024, which had a huge impact on the growth of coffee trees and the output of coffee beans. Then, in October, there was heavy rain, and this abnormal climate condition further affected coffee production. Vietnam, a major coffee-producing country in Southeast Asia, also received excessive rainfall during the coffee bean growing season, which was not conducive to the growth and picking of coffee beans. Volcafe, a top coffee trader, has significantly lowered its production forecast for Arabica coffee beans for 2025 - 2026 by nearly 25% to 34.4 million bags, indicating that the market will experience a supply deficit for the fifth consecutive year. The consulting firm StoneX predicts that by the end of September 2025, the output of Robusta coffee beans in Vietnam may decrease by 10%, further intensifying the global shortage of coffee supply.

The significant price increases of cocoa and coffee have had a profound impact on the related industries. For cocoa producers, although the price increase has brought certain profits, they also face many difficulties. Hershey, a global chocolate giant, released a financial report in the third quarter that did not meet market expectations, with its net profit dropping from $518.6 million to $446 million. Hershey attributes this performance change to the high price of cocoa and the challenging consumer environment. In order to stabilize the source of goods and ensure the stability of its supply chain, Hershey announced that it has signed a five-year agreement with nine cocoa production cooperatives in Côte d'Ivoire to cope with the problems of rising cocoa prices and unstable supply.

In the coffee industry, the soaring prices pose a huge challenge to roasters. Nestlé, one of the world's largest coffee producers, saw its CEO, Schneider, removed from his position in September 2024. Behind this event is the dissatisfaction of the board of directors with weak sales and the loss of market share due to rising prices. As coffee prices rise, consumers are turning to cheaper brands, which puts large coffee enterprises like Nestlé under great market pressure.

Looking to the future, although the prices of cocoa and coffee have increased significantly for two consecutive years, there are still many uncertainties in the market trend. On the one hand, the continued high prices may further restrain market consumption ability. Rabobank has stated that given that the trading prices of these commodities are much higher than the production costs, it is expected that production will expand next year while demand will decline. If demand drops, the driving force for price increases may weaken. On the other hand, climate change remains a key factor affecting the production of cocoa and coffee. If the climate conditions continue to deteriorate in the future, it may further exacerbate the supply shortage, thus pushing prices up further.

In general, the soft commodities cocoa and coffee have performed outstandingly in the market and become the leaders for two consecutive years, which is the result of the combined action of multiple factors. In the future, with the continuous impact of global climate change and the constant changes in market supply and demand relationships, the price trends of cocoa and coffee will still be full of uncertainties. Relevant enterprises and investors need to pay close attention to market dynamics and adjust their strategies in a timely manner to cope with various possible situations.