indicatorThe Owl

Brewing troubles

Coffee and cocoa prices heat up

By Miranda Mantey, ATB Economics 8 April 2024 3 min read

Amid the top five strongest El Niños in recorded history, Albertans might feel the warmth of the 2023-2024 season in more ways than one. Global weather fluctuations and crop diseases are primarily responsible for significant price surges in two commodities essential to the happiness and wellbeing of many—cocoa and coffee.

The ripple effects have already likely made a dent in our grocery expenditures, with cocoa prices more than tripling over the last year. West Africa, which commands about 70% of the global cocoa supply, is grappling with a mix of adverse weather conditions and crop diseases.

Experts at Citi Research have been closely monitoring benchmark Intercontinental Exchange (ICE) cocoa futures to gather insights into future trends. Futures trading enables investors to buy or sell cocoa contracts at a predetermined date, offering insights into supply, demand, and market speculation. Recently, these contracts saw a dramatic increase, surpassing US$10,000 for the first time, a 120% increase from last year, before falling to US$9,370 per metric ton on April 4.

In this period of volatility, the process of cocoa grindings stands out as an essential indicator of demand. It serves as a pivotal step in the transformation of cocoa beans into usable cocoa products, highlighting its critical role in the industry. Prices might recede to the US$7,000 to US$7,500 range with diminished demand, or potentially spike to US$11,000 to US$12,000 should stability persist. Nevertheless, Citi Research hints at a likely dip or stabilization in prices, offering a glimmer of hope to chocolate aficionados.

Some Alberta businesses are feeling the strain including Jacek Chocolate Couture located in Sherwood Park. Jacqueline Jacek, the owner, has encountered a 25% hike in the cost of specialty cocoa orders. She notes that this surge in expenses will likely be transferred to consumers.

Parallel challenges plague coffee production, which may elicit worry among Canada's vast legion of coffee enthusiasts and dependents such as myself. Ranking ninth worldwide in coffee consumption, Canadians consumed an average of approximately 8 kg per capita between 2021-23, up 10% from about a decade before. Canadian consumer prices of roasted or ground coffee jumped 6.9% last year but have moderated since then to an annual inflation rate of 2.1% as of February 2024. Coffee shops play a vital role in the community fabric of our province, evidenced by their popularity as the top choice for first dates among Albertans. In fact, the average Albertan spends $36.42 per month, third highest in the country after British Columbia and Ontario.

The market saw Arabica coffee bean futures for May delivery surpass the US$2 per pound mark, setting a new annual record and outstripping Citi Research's forecast of US$1.85. A critical factor in this surge is a heatwave in Vietnam, which has severely impacted Robusta coffee production and, in turn, ramped up demand for Arabica.

Citi Research's revised projections suggest coffee prices might hover between US$2.10 and US$2.20 shortly, with an expected range of US$1.88 to US$2.15 per pound for the year's remainder. They haven't ruled out the possibility of further adjustments should the coffee supply tighten.

The interplay of weather conditions, agricultural vitality, and global consumption trends brews a complex mix of supply uncertainties and demand anxieties. As we steer through these tumultuous times, our collective hope hinges on a favourable turn in prices, guiding the future of our cherished cups of coffee and chocolate treats.

Answer to the previous trivia question: Solar eclipses occur when the Moon passes between the Earth and the Sun.

Today’s trivia question: In what year was the British weekly “The Economist” first circulated?

Canada ranks as the ninth largest consumer of coffee in the world

Canada ranks as the ninth largest consumer of coffee in the world

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