Talk about sweet returns. As Easter approaches, the cost of chocolate candy ingredient cocoa has spent the year skyrocketing. Spot prices are up more than 127% since the end of 2023. That’s a better winter than Bitcoin. Despite all the hype as it approaches new records, the digital currency is only up a paltry 57% this year.
Though many chocolate producers hedge their costs months in advance so they’re not exposed to the volatility of spot markets — Hershey told investors its cocoa supplies were locked up a year out —the jump in cocoa prices is still a bright spot on their radars.
“From a cocoa bean price point of view, it is an unprecedented price hike,” Martin Hug, CFO of Lindt and Ghirardelli parent company Lindt & Sprüngli, said during an earnings call earlier this month. The commodity is three times as expensive as it was the same time a year ago in spot markets.
Much of Bitcoin’s appreciation during its renewed hype cycle has come from a flood of new investor capital in the form of spot Bitcoin ETFs, which the Securities and Exchange Commission approved earlier this year. On top of that, investors are staring down a so-called Bitcoin halving event, when Bitcoin miners will see half as much of their rewards. Previous halving events have sent Bitcoin prices higher.
Cocoa, on the other hand, is rising in value because its supply has been severely constrained by climate change. Periods of intense rain followed by drought have reduced crop yields in addition to swollen root disease that is also affecting the health of cocoa trees.
Making matters worse (or better, depending on which side of the trade you’re on), Bloomberg reports that the cocoa rally has been so extreme that traders are being forced to sell short positions they held as part of normal hedging.