The Mayans, Aztecs & Olmecs Traded Using Cocoa, I Guess This Is Why!
Retail chocolate prices are rising (and will increase much further, while shrinkflation will take hold) after wholesale cocoa prices surged to an unthinkable all-time high of $10,000 a ton recently. For sake of reference, it was $2,500 USD a ton a year ago and a mere $650 a decade ago.
Adjusted for inflation, Cocoa’s all time high was 27,000 USD/ton, it will be interesting to see if we touch this again.
The crux of the problem stems from Africa, whereby economic collapses are common to pop up ever so-often. You can rewind the clock back to see years & years of underinvestment in cocoa farming in West Africa, home to ~75% of the world’s supply. Immediate bad weather and diseases added to the problem but you should denounce any low IQ ideological “climate change” explanation–the problem has come from neglecting investment required for healthy production.
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West Africa cocoa is still grown by extremely poor folks simply making enough to subsist. With what they earn year to year, most therefore lack the means to re-invest in their plots — either by planting new trees or investing in fertilizer and pesticides. If we consider the high fertilizer prices as of late, and difficulty locating natural gas products for these countries, the ability to reinvest has been constricted. In other words, this creates an environment where old cocoa trees are the only path forward for production. Ultimately, this translates to lower yields, and plants particularly vulnerable to bad weather and disease since the trees are less resilient.
Take offshore oil rigs as an example. They are near 90% utilization, and even if rig operators wanted to get a new rig built, an unwillingness of banks to finance, lack of capacity at shipbuilders, and general unwillingness to take on projects as evidenced with 40% deposits required. A rig operator would be lucky to take delivery of a rig before 2030 & Subsea operators have a backlogs of 2-3 years. A similar dynamic is ongoing with chocolate, and the ability to come up with supply is not as high as it otherwise should have been. These dynamics to hit a point of extreme pricing.
What we’re looking at is the development of a shortage not witnessed in 6-decades
This is on the back of doubled consumption rates across the last 30 years. The demand is coming from all corners of the world, relatively evenly
It is unrelated but noteworthy fact on food production–> at the time of writing, the United States has the fewest number of cows since 1950 when the country was only about 45% of the population it is today.
Chocolate is the new crypto
Closing
The real danger we see ourselves in is a scenario where this extreme volatility (not only hitting commodity markets but) in overall markets cause a lot of trading, banks & commodity firms to go bust. Since the “real” economy is connected to the “financialized fake” economy, the removal of the financing to a greater degree will enhance cocoa shortages.
As of last month, the aggregate number of outstanding contracts in the New York and London cocoa futures market has fallen by ~35% over the last three months–highlighting this danger already occurring.
Similar to our Uranium article, we’re facing a time where the question to “where the heck is the supply going to come from?” has no immediate answers. Bearing the brunt of decade-long stint of reduced investments will take time to incur the full effect of these distortions. The path forward for now will undoubtedly be higher prices, for far less chocolate in the store. The endless supply of debt monetization & bad investment allocations due to unfound or faulty narratives is beginning to hit the commodity sector one by one. The next in our opinion? Copper.
#StayOnTheBall
