Sugar for sale at a supermarket in Yichang city, China's Hubei province, April 6, 2023.
Future publishing | Future publishing | Getty Images
Futures contracts on orange juice, cocoa, coffee and sugar have surged in part due to extreme weather and supply shortages related to El Niño.
“You can say that El Niño has a sweet tooth because it eats up or takes away a lot of the sugar in the world, so to speak,” Carlos Mera, head of agricultural commodities market research at Netherlands-based Rabobank, told CNBC.
“Sugar prices have probably already been passed on [to consumers] But for chocolate, we should definitely expect a big increase at the retail level – and El Niño is definitely something to keep an eye on.”
The El Niño phenomenon, which recurred earlier this year, is a naturally occurring climate pattern that occurs when ocean temperatures in the eastern Pacific rise 0.5 degrees Celsius above the long-term average. It can pave the way for more storms and droughts.
Orange juice is displayed at a grocery store in Miami, Florida on January 19, 2023.
Joe Raedle | Getty Images News | Getty Images
The effects of El Niño typically peak in December, but it typically takes time for the effects to spread across the world. This lagged effect is why forecasters believe 2024 could be the first year that humanity crosses a critical warming threshold.
El Niño-induced drought across much of Southeast Asia, India, Australia and parts of Africa has led to a price rally in agricultural commodities such as sugar, coffee and cocoa this year, Rabobank said in its annual outlook for 2024.
The Dutch bank generally expects global food price inflation to fall sharply after years of rising prices.
It also warned that several crops could be affected by El Niño early next year, but acknowledged that some crops may benefit, citing those in the United States, southern Brazil and Argentina.
Orange juice futures rose a whopping 80% in 2023, hitting an all-time high in late November after hurricanes and disease devastated Florida's citrus crops.
“Occasionally, these markets exceed our wildest expectations. Did anyone predict $4.00 worth of orange juice? The profit potential from this trade is staggering,” says trader Dave Reiter of Reiter Capital Investments LLC said on October 30 via X, formerly known as Twitter.
Reiter has since warned that the eventual drop in orange juice prices “will be a record drop.”
The price of cocoa, a key ingredient in chocolate, rose 64% this year to its highest level in 46 years as supplies to West Africa were hit hard by heavy rains and problems such as fungal diseases.
The Robusta coffee variety hit its highest level in 15 years on December 15, while sugar prices have risen 13% in 2023, although gains have slowed from their 12-year peak in September.
Workers collect dry cocoa beans in front of the store of a cocoa cooperative in Hermankono village on November 14, 2023.
Sia Kambou | Afp | Getty Images
Rabobank's Mera said there is a “very clear” link between El Niño and higher sugar prices, as weather patterns tend to make conditions drier than normal in major sugar exporting countries such as Thailand, India and Australia.
For cocoa, Mera said the impact of El Niño is likely to be “much weaker.” He added that higher chocolate prices were unlikely to immediately weaken demand or even incentivize production due to the mechanics of the cocoa market.
“The cocoa industry is characterized by a lot of forward selling, partly due to the way cocoa is traded [in the Ivory Coast and Ghana]said Mera, referring to the world's two largest cocoa producers.
“For example, they tend to sell the crop a year in advance. This means that the chocolate you buy in the supermarket was probably bought at a much lower price a year ago,” he added.
“I’m surprised that the price of cocoa is so much higher and consumers aren’t feeling it yet,” Mera said. “That will be the case – those costs will be passed on to consumers sometime in 2024.”