Cocoa beans and crude oil - seemingly unrelated commodities, with one being a sweet craving and the other being the power source of nations - yet both of these commodities joined hands lately as prices for both have shot up tremendously, which might not be good for inflation in India.
Why Are Cocoa Prices Rising?
Cocoa prices have risen over US$ 10,000 per metric ton (129% increase this year), reaching an all-time high in March 2024, breaking the previous highs of US$ 5,700 seen in the 1970s!
This is a direct result of the widening demand-supply gap, with supply falling short of 3,74,000 tons (10% of 2024 demand), up 5x from last year’s deficit of 74,000 tons - the biggest gap in 60 years!
To make matters worse. 60% of the world’s cocoa supply comes from just 2 countries - Ivory Coast and Ghana, thereby exposing the industry to 2 major threats:
This is a long-term story in action, with companies like Hershey’s stock being down 25% in the last year, with more pain seemingly ahead.
With the average price hike of 20% seen across brands already, this issue will either trigger a further increase in price or a reduction in the size of our favourite sweets.
Why Are Crude Oil Prices Rising?
Oil prices have risen to the level of US$ 90 per barrel in recent weeks - the first time prices have touched the US$ 90 mark since October 2023 (which occurred due to Russia and Saudi Arabia extending production cuts till the end of 2023).
Why Should You Care?
While the effect of the chocolate price hikes will have more of an effect on our mood and the sales of chocolate companies more than anything else, the crude oil issue is a little more serious.
With India hovering around the 5% inflation level, sustenance of current crude oil prices (or worse, an increase) could contribute detrimentally to our goal of bringing inflation under 4%. A delay in achieving ideal inflation rates automatically delays the possibility of rate cuts.
RBI already stated another pause on rate cuts this week, but from the looks of it, the next MPC meeting in June might have a similar response.
As we’ve said before, a rate cut is an incentive for businesses to grow business for cheaper loans, and delay in those rates leads to delay in progress - which might make investors a little jittery all too close to the elections. As usual, caution is advised!