Forget Nvidia! Here Comes Cocoa!

Up more than 80 percent so far in 2024, Nvidia has been one of the drivers behind this year’s stock market rally. The chipmaker, which has profited from the rapid rise of AI like few other companies, if any, has so far lived up to hype, delivering results that exceeded already lofty expectations in each of its past earnings reports. 

And despite Nvidia being one of the best performing stocks in the S&P 500 as the index climbed from record to record this year, there’s an even better investment you could have made in January 2024: cocoa. You heard correctly: the price of cocoa beans, the most important raw material for making chocolate, has surged more than 120 percent this year, with cocoa futures temporarily trading at more than $10,000 per metric ton this week.

Cocoa prices have soared in recent weeks due to a global supply shortage, which has likely resulted in panic buys by some commercial buyers, driving up prices even further. The world’s largest producers of cocoa beans, Ivory Coast and Ghana, have been hit by unfavorable weather conditions and black pod disease, resulting in lower cocoa yields compared to previous years. Since the start of the season, arrivals at Ivorian and Ghanian ports are down 28 percent and 35 percent from the same period last season, the International Cocoa Organization (ICCO) said in its February report on the cocoa market. For the 2023/2024 season, the organization expects a supply deficit of 374,000 metric tons, down from just 74,000 tons in the previous season, which ended in September 2023.

Given that there’s no easy or quick fix for global supply issues like this, cocoa prices are almost certain to remain elevated for a while. Consumers will likely start to feel the effects later this year, as producers will eventually to pass higher costs on to consumers either in the form of higher prices or in the more discrete form of shrinkflation, i.e. smaller packages at the same price.