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How to Profit from Cocoa Futures in a Post-Carbon World

Jeff Siegel

Written By Jeff Siegel

Posted February 19, 2024

You want to see something mind-blowing?

Check out this chart …

cocoafutures


This is a one-year chart of cocoa futures.

In the past year, cocoa futures have essentially doubled.

It’s so bad, that behemoth chocolate maker Hershey (NYSE: HSY) announced that it now expects higher cocoa prices to limit its earnings growth this year.  Hershey, by the way, is down more than 30% since its peak of $276.88 back in May, 2023.

So what gives?

Why have cocoa prices doubled in just one year?

Well, like all food commodities, extreme weather conditions can affect the value of cocoa.  And what we’re seeing now is the result of an El Nino causing extremely dry temperatures in West Africa, where the majority of the world’s cocoa is grown.

This is of particular concern as changing weather patterns have affected cocoa yields so much, some analysts are suggesting that they’re now permanently impaired.  Not just because of this particular El Nino, but because of a continuation of changing weather patterns and extreme weather events that are becoming the new normal.

Now it’s understood that cocoa crops typically have to be grown within 10 degrees north and south of the equator.  This is why the largest producers of cocoa are in Côte d’Ivoire and Ghana.

The problem is that increasing temperatures in those regions could make it harder and harder to maintain those cultivation regions. 

Some have even suggested that chocolate could become completely extinct by 2050.

While it’s plausible that the regions once known for commercial cocoa production will see a significant reduction in yields, chocolate will not just disappear from the planet.

In fact, while West Africa is sure to experience some real damage to its cocoa industry, other parts of the world are in position to increase cocoa production. Particularly Ecuador and Brazil, with the latter expected to double production by 2030. 

There’s also opportunity in new food technologies that are facilitating the production of cocoa, not in climate-sensitive regions in Africa and South America, but instead, in labs.

In fact, just last week, Japan’s largest chocolate company Meiji Holdings (OTCBB: MEJHY) announced that it has decided to partner with California Cultured, which is a California-based start-up that’s producing cocoa from cell structures.  The process takes days instead of the months or years it takes to grow and harvest cocoa in a conventional way.  

Understand, this is not a substitute for cocoa.

The company can actually produce chocolate that has identical characteristics to any piece of chocolate that you find at the store – down to the last molecule. 

While some folks still have a hard time wrapping their heads around the idea of creating meat, coffee or chocolate in a lab, consider this: Meiji’s current revenue (TTM) exceeds $7.8 billion.  Boasting a market cap of $6.3 billion, this is not some pie-in-the-sky startup with big dreams and no income.

This is a major player that sees the writing on the wall, and is ponying up millions of dollars to ensure a steady supply of cocoa behind the backdrop of a coming cocoa crisis in the world’s largest cocoa-producing region.

This isn’t to say that all of our chocolate will one day come from a lab.  But it does add further diversification for a food commodity that will need it in a world where extreme weather events will no longer be random, but common.  Essentially, it could serve as a very important hedge against future spikes in cocoa futures resulting from continued changes in weather patterns. 

While you don’t typically find a lot of investors following cocoa markets, they’re definitely worth following as any disruption to those markets can serve as a valuable indicator for future investments.  Particularly when it comes to foodtech, which is a growing industry that I believe will present some very profitable opportunities over the next few years.  And I will certainly present those opportunities to you along the way.

As a side note, I expect that in the next couple of years you’re going to see more chocolate companies, as well as food companies that rely on massive amounts of chocolate, begin to invest in lab-grown chocolate in an effort to prepare for a post-carbon world where price fluctuations in cocoa will become the norm.  These include, but are not limited to …

  • Mondelez (NASDAQ: MDLZ)
  • General Mills (NYSE: GIS)
  • Nestle (OTCBB: NSRGY)
  • Lindt & Sprungli (OTCBB: LDSVF)
  • The Kraft Heinz Company (NASDAQ: KHC)
  • Barry Callebaut (OTCBB: BRRLY)
  • Unilever (NYSE: UL)

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