Hot chocolate: The scolding trade of 2024

Cocoa is not a market I tend to track too closely. But I made a mental note to, upon seeing a national grocery chain increase the price of their home brand chocolate by 60%. $4.00 is still not a huge amount to pay for a slab of alleged Belgian dark chocolate. But it tasted much nicer at $2.50.

However, having since seen the raging bull market on cocoa prices this year, I’ll not complain with the 60% hike on nature’s anti-depressant. Cocoa futures have surged 220.5% from January’s low, before doubling in price with a 101.2% rally from the October low following a multi-month rally. And that saw prices accelerate above its falling wedge target before stopping just shy of the 13k level.

An unfortunate combination of factors help explain the surge of cocoa prices

Supply deficits in major cocoa-producing countries Ghana and Côte d'Ivoire due to disease outbreaks, aging trees and extreme weather conditions exacerbated by El Niño.
Persistent dry weather in West Africa has lowered yields.
The availability of cocoa beans were also lower, thanks to EU’s deforestation-free regulations
Global demand has surged
All the above helped fuel speculative bets and panic buying from producers, further sending prices surging higher.

Are chocolate drops off the menu?

Not necessarily. But they may be on the small side. We’ve seen a strong rally in December but prices are perhaps a bit extended from their 10-day EMA (exponential moving average). The daily RSI (14) also reached its highest level since March and well within the overbought zone at 86.5.

Note that the 20-day EMA sits near a 38.2% Fibonacci ratio and June high around 10,300, which could make it an ideal for chocolate ‘dip’ buyers to return. And until we see a significant shift in the fundamentals supporting cocoa prices, I could be looking at even higher prices for confectionary in 2025.

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