Bad News for Chocolate Lovers: Cocoa Hits Historic High As Dry Weather Dampens Supply

June 24, 2008
By Moming Zhou
MarketWatch

SAN FRANCISCO (MarketWatch) -- Cocoa futures rose to their highest level in at least 24 years Tuesday, as dry weather in major cocoa-producing countries dampened supplies. The price of the main ingredient of chocolate has doubled since the beginning of 2007.

Cocoa futures for July delivery were last seen up $49, or 1.5%, to $3,240 per metric ton on the IntercontintalExchange, or ICE Futures. Cocoa was trading at around $1,600 in early 2007. At the current levels, cocoa's prices were the highest since 1984, according to data collected by FactSet.

The surge in cocoa prices was caused by "unfavourable weather conditions in most parts of the cocoa producing areas," said Laurent Pipitone, senior statistician at the London-based International Cocoa Organization.

West Africa, the main cocoa-producing region, was hit by severe dry and dusty winds at the end of 2006 that lasted until February 2007. The dry weather sharply cut production in Ghana and the Ivory Coast, the world's top two cocoa producers.

Dry weather also hit Indonesia, the world's third largest cocoa producer, and other Southeast Asian countries at the beginning of 2007 as El Nino, an ocean atmosphere phenomenon that changed temperatures in surface waters, hit the region.

The world's cocoa production in 2007 dropped more than 10% to 3,370 metric tons, the lowest in four years, according to the International Cocoa Organization. This year's year-end stocks level is projected to fall to 1,533 metric tons, the lowest in five years.

The 2008 season has seen better weather conditions but "this would not [be] enough to meet the demand," said Pipitone.

Elsewhere in futures trading, wheat futures for July delivery rose slightly to $8.68 a bushel on the Chicago Board of Trade. Corn for July delivery fell $9.75 cents, or 1.4%, to $7.145 a bushel on the CBOT. July soybeans dropped 14 cents, or 0.9%, to $15.01 a bushel. End of Story

Moming Zhou is a MarketWatch reporter, based in San Francisco.

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