For those of us who live on caffeine and sugar, it’s exactly the news we didn’t want to hear. Coffee and cocoa prices soaring to record highs on the commodities market, with doomsayers predicting that confectioners and baristas may be forced to charge punters more for their stimulants.
Chocky prices jolted to their 33-year sugar high this week on the back of news that London-based speculator Anthony Ward — dubbed ‘Choc Finger’ by the British press — had purchased 241,100 tonnes of cocoa beans or 15% of the world’s supply. In an unusual twist, the chocolate baron took physical delivery of the order, estimated to be worth more than $1 billion.
In news sure to further break the hearts of addicts everywhere, coffee prices have also buzzed to a 12-year high, as poor harvests in central and South America continue to wreak havoc on global supply.
So are these prices here to stay? Have we reached a new world order (gasp!) where that all-important sugar and caffeine hit is out of reach of the average addict?
Crikey went to Wayne Gordon, a senior analyst in Food & Agribusiness Research at Rabobank, for some much-need answers:
Has ‘Choc Finger’ succeeded in his evil plan? Will prices remain at record levels?
There is a definite concern that higher cocoa prices are here to stay. However, the direction of prices is primarily driven by supply-side fundamentals, not speculators like Mr Ward. These fundamentals include weather or the political instability of countries such as Ghana or the Ivory Coast that produce large amounts of the commodity. There is a risk premium added to these prices and it has become quite evident that these issues might be around for some time.
So speculators like the Chocolate Czar have no way of controlling prices?
Prices aren’t driven by speculative fund behaviour, however the sharp movements and the volatility in prices is certainly being accentuated by speculator funds in the market. Weather conditions and supply issues are still the main driver of prices, however prices may be rising and falling more quickly than fundamentals might suggest.
What about coffee, please tell me some good news about coffee…
Coffee has seen a deficit for a few years where production has fallen well short of consumption. However there has been a sharp increase in production in the last year that we feel will alleviate the price rise. We have felt that the coffee price has been rising quite sharply, but I’m not confident that fundamentals are truly underpinning the current price rally. It’s very similar to something like sugar, where the current price rallies are reflecting short-term supply issues.
Are higher prices for coffee and chocolate here to stay?
Cocoa is better supported in these prices than coffee is, given the very optimistic outlook for coffee over the next 12 months. However when you’re having your cup of coffee you need to remember that milk prices have also gone up, so basically you’re getting nailed from all sides.