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The HC Commodities Podcast
Coffee & Cocoa's Wild Ride with Kona Haque
00:55:28
Today, we are talking coffee, cocoa and sugar. And in the case of coffee and cocoa, the absolute wild ride they had in 2025.Record prices and extreme volatility. Was it all just a story of tariffs? Or is there something more fundamental going on? Our guest is Kona Haque. Head of Research for ED&F Man, one of the world's largest soft commodity traders that has recently been acquired by Hartree Partners
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- [00:00]
A
Foreign. Welcome to the HC Commodities Podcast, a podcast dedicated to the commodities sector and the people within it. I'm your host, Paul Chapman. This podcast is produced by HC Group, a global search firm dedicated to the commodities sector. Today we're talking coffee, cocoa and sugar. And in the case of coffee and cocoa, the absolute wild ride they had in 2025, record prices and extreme volatility. Was it all just a story of tariffs or is there something more fundamental going on? Our guest is Kona Hack, head of research for EDF man, one of the world's largest soft commodity traders that has recently been acquired by Hartree. As always, you can really support the show by leaving us a positive review on the platform. You're listening on liking and linking our posts on LinkedIn or commenting on YouTube. It really helps expand our audience and therefore continue to get great guests and have great discussions. And as always, I hope you enjoy the episode. Kona, welcome back to the show.
- [01:19]
B
Thank you. Thanks for having me.
- [01:20]
A
Yeah, we were lucky to have you back on a couple of, couple of years ago to take us through the softs market and, and what was going on at that point. And obviously it felt very timely to have you back on, not least in time for the, the festive season as we're talking about cocoa and coffee and sugar, but also obviously it's been an absolutely wild ride and we were just saying, I think there was one point where Coco was outperforming Nvidia this year. So that's the story that we're going to tell. We're going to tell it in three parts, focusing on coffee first, then cocoa and then sugar and just get an understanding of what's happened in those markets. Was it all just tariffs and political disruption or were other things going on? And indeed, you know, how have those markets fared and how they survived and have they been damaged by that governmental intervention and tariffs as we saw so long intro. But let's start with coffee. And one more thing to say, we're not going to spend quite as much time on the actual market structure because we were lucky enough to have Charlie Stevens on back in episode 2217, if you can believe it's talk coffee in its supply chain. But just as a bit of a refresher, can you just give us a quick overview? And that's a tough ask of kind of how coffee ends up at our, on our, on our breakfast tables.
- [02:51]
B
Wonderful. Yes. So it's, it is, it's. Coffee is one of the most traded commodities in the world in terms of Proportion of production. Most of it gets traded. It's produced in the tropical world, but most of it gets consumed in Europe, followed by the USA and then Japan and some other emerging markets which by the way are growing quite rapidly from a small base. So they're grown in trees. Usually hilly upland areas are the best for climatic reasons. The trees grow between two to three years and then you have cherries. Those then get ripened and then they get dried out. Then the husks get removed, they are then roasted and the beans inside it become that lovely dark brown, flavorsome beans that we all. Then they're green. Initially they get shipped as green coffee across to roasters in Europe or America who will then essentially convert them into the coffee that we love and we love to drink. So it's pretty simple at its basic. Brazil is the world's largest producer by far. They produce mostly Arabica, which is the coffee that we have in sort of the milder flavor ones. Robusta is the more bitter tasting one. The one that gets consumed in espressos, for example. That is produced by Vietnam mostly. But if you think about it, the biggest producers, it's Brazil followed by Vietnam followed by Colombia. You have a chunk of producers in Central America, some of the Nicaragua, for example, Honduras, but also growing upcoming countries in Uganda, Tanzania, Kenya, who also produce really flavorsome mild coffees, mild Arabicas and then some growing emerging producers in, in India as well. But obviously one of the original first back in the. Well before coffee became a mainstream drink, you know, Ethiopia was one of the first ones and their production obviously got overtaken by South America. But they're coming back, you know, with obviously with these recent high prices, you are definitely seeing some of the African trying to really get back into their share of global production.
- [05:14]
A
Wow. Well, that was impressive. A quick tour around the world. Okay, so you mentioned at the start that it's one of the most traded soft commodities. You know, can you just give us some sense of the, of the market for coffee and trading operations? You know, because there are obviously many of these softs that, you know, there's. There's quite a sort of long tail of them that aren't traded in any form. Who's trading coffee and why and how?
- [05:39]
B
Yeah, so it is as global as you can get in terms of trading and the traders that are involved in this have been doing this for a very, very long time. Right now the biggest that I can think of today would be the likes of Louis Dreyfus Volcafe, which is part of ednf.man ecom. And then you have Sugden and Neumann, Neumann Coffee, which is based in Switzerland. So these are the big coffee trade houses. I would say the top four could produce or, sorry, trade about between 7 and 11 million bags of coffee a year. Typically we see anything between 50 million bags traded in a year, of which Brazil again is the biggest origin. Europe, as I mentioned before, key destination. So these companies have a huge history of being not just as the shipper, but they originate clearly from all the origins. They have offices based at origin at the port of Santos, for example, in Brazil. That's one of the, the original first coffee trading boards were set up, massive hub there, but also in Vietnam, Colombia, you name it. And they have entities which essentially originate the coffee, ship them into containers and then they will then effectively send it to the roasters. Now the roasters could be in any of the western markets, but it could include Nestle, Starbucks and some of the independent roasters who will provide the private label coffee that we get at our supermarkets. There are so many and they are part of the whole supply chain. Those roasters will then supply coffee either at their own brands or to coffee shops or even to private labels which will end up at the supermarket stores. And the trade houses have relationships with all of them and they provide financing, shipping and warehousing solutions to each of these entities at either side of the supply chain.
- [08:07]
A
Yeah, I guess because it's going to be relevant to how the trade disruption sort of sent these prices just, you know, unbelievable. Well, to historic levels, but also unbelievable volatility within it that sort of rise up and down a couple of times in late 24 and this year. What financial contracts are available to these trade houses and traders to complement their physical operations?
- [08:36]
B
Yeah, so New York Life and London are the main coffee futures exchanges. So that is the biggest hedging operation that they can rely upon for, for, for all of their operations, essentially. So London is typically where the robuster futures markets are hedged and the New York markets are where the Arabica ones get done. And equally that's where the deliveries happen in those ports. So it's, it's a very useful tool and as you mentioned, it's, it's been incredibly volatile and these markets were heavily used for all kinds of hedging purposes. But inevitably when you do have these kind of volatilities, it start attracting and the likes of speculators. And we did see wild swings as we started to see open interest increasingly being taken up by the likes of hedge funds, trend followers who are also looking to take a slice of the market and enjoy some of that volatility.
- [09:43]
A
Okay, so that frames that introduction of speculators. And, you know, and on this podcast, we argue that they're a good thing for commodity markets in case the U.S. senate's listening and want to do what they did to onions. Can you just give us some. Before we talk about the why, can you just give us some sense of the scale of what happened in the coffee markets in the past 12 months or so?
- [10:11]
B
So if you want to look at the last 12 months, you have to kind of go back to the last five years almost, because what this past year has been is an accumulation accumulative effect of the previous five years. Essentially 24, 25 season, which just ended in October, was the fifth consecutive deficit. And this has just never happened in the history of coffee that as far as I know, you get surpluses, you get deficits, but they typically last two, maybe one, two, three years. You've never seen five in a row. So at some point you start wondering, what is going on? Is this a climate change effect whereby producers just can't take a break and cannot produce enough despite really attractive prices? Well, actually, that is exactly what happened, because if you think of the two major producers, Brazil and Vietnam, they both had different variations of droughts, repetitive droughts, extreme floods, or extreme frosts. And Brazil had a combination of two consecutive droughts and then two heavy frosts between the period of 2020 and 2025. So all of this meant that production levels were never quite being repeated to the level that global consumption needed. Stocks were not being replenished, and export availability was just basically disappearing to at rapid levels and leading to a scarcity situation, which then caused prices to go through the roof. And while Brazil is the biggest producer for Arabica, Vietnam couldn't provide some of the slack they normally. When you have such high prices for one grade of coffee, which is the Arabica, typically on the consumption side, you're able to switch to the lower grades, which is robuster, and you can have a bit of an arbitrage there. But in this case, Vietnam also seemed to have quite a sharp drought the season before last, which meant that their yields sharply dropped quite a bit as well. And then that resulted in a double whammy of the two biggest entities both having subpar production. So it was a classic supply demand crunch. We saw certified stocks get down to historically low levels, roasters were in a panic, margin calls were being seen left, right and center. The ability to buy any kind of coffee Meant that you have to stretch to elevated levels in excess of $4 per pound. And what was astonishing was that even at these levels you couldn't, you couldn't generate enough supply out of the origins because they just didn't have the crops. So it really was a case of keeping prices high enough in order to destroy demand. So while this was happening and we're beginning to see that, you know, you were seeing on the, at the consumer level, you're beginning to see a lot of the roasters trying to trade down towards lower quality coffees or you know, wherever they could. They were trying to discount prices to try and attract some kind of market share. Because one thing you'll know about roasters is that it's all about their market share. So even though prices are very elevated, they're very loath to pass that down to the consumer level. And that led to a very sticky level on the demand side whereby demand was not being destroyed rapidly enough because those prices were not being passed down because of this desire to maintain market share. So in the usa, for example, you had Folgers or Schmuckers, they were trying to maintain market share, but some point that was hitting their margins. And what was happening was you were seeing consumers buy less coffee from outdoors, so that would directly impact the likes of Starbucks for example, and trying to consume cheaper coffee from shop bought coffee from the supermarkets. But then within the supermarket shelf they were also moving away from some of the branded coffees to the own brand of the private labels because wherever possible there was this kind of trading down happening. And then again to add to the whole stickiness story on the demand side, you were seeing this inelasticity being propelled by the fact that supermarket would often see coffee as a loss leader. So they would discount heavily and provide these, all these big promotions on coffee, which again meant that the consumers were not cutting back rapidly enough. And let's all face it, you know, coffee is, is addictive.
- [14:47]
A
I have a Starbucks in front of me right now because we, we ran out of beans at home. So I drove at 6:30am to go get one. So that shows how, how sticky and inelastic the demand is in, in our household. But I find that fascinating, right, because this, and so before we get to kind of the tariff story, you know, this is, it's fascinating that this is the real world climate sort of volatility playing out. But when we talk about these ag markets in general, essentially they're less able to respond. What I'm hearing is coffee is less able to respond to price signals because a, you have a limited amount of land that sits at the right elevation, etc. But no matter, you know, you might be, you know, it might, many farmers might plant more crops, but those crops might not survive in this more, you know, climatically, weather wise, volatile world that we're in. And that's undeniable whether you believe in climate change or whatever. We've certainly seen very volatile, great volatility over the last five years. And so that's, you know, that there's, there's somewhat of a, a herald of what might happen in what's going on in other ag markets. Right. In other words, people need to buy grain, they will buy coffee because it's addictive, but they're just less able to respond to these price signals and say oil, where, you know, it doesn't matter what the weather is, you can still drill for more oil 100%.
- [16:12]
B
And compared to grains, for example, or other, or oil seeds, which are row crops. So typically, if you do see a price spike, farmers can just plant more of it the following season, which happens within a year. But with crops such as coffee or cocoa, even that is not an annual crop. You know, that is a two to three year, even three to four, depending where you are. So that response time is so much more lagged. And as you mentioned, you know, there's only finite land. And one structural trend we're seeing, particularly in origins outside of Brazil, is that it's not just a land availability, it's a labor availability thing. The young people, those, you know, that lovely romantic story we'd see of people in the Del Monte, for example, having coffee and their farmer, their kids are moving to the urban areas, they're going to cities, they're leaving the coffee farm, they don't want to stay at pick coffee. And labor has already been an issue with the migration. All this Latin American laborers all leaving for the usa okay, there's a bit of a reversal of that's happening now. Even if they are coming, they don't want to come back and work on the farmers. So that's more of a structured story long term, which adds and compounds to the climatic story you were mentioning. And frosts are such a weird new thing, which because again, you didn't used to get frost events in Brazil. Brazil's always been so warm, but when they get these frosts, that tree has sometimes has to be stumped. So that means you have to wait for a good three years before you can actually replant it. Having said, all of that the conditions today with the elevated prices now for three years, it's definitely very, very attractive. And I would say Brazil and possibly Vietnam are the countries that are going to be responding the most and the most rapidly in terms of any future production. That's where all the growth is because they have the ability, the land and the know how. The energy and resources sector is experiencing unprecedented change. To help navigate this change and capture its opportunities, HC Group launched Enco Insights, a global advisory network dedicated to the sector providing senior advisors and subject matter experts to investment and infrastructure funds, law firms and corporates. Enco Insights leverages HC Group's 20 years of connections in energy and commodities to give clients the expertise they need when the stakes are high and insight matters.
- [18:36]
A
Learn more@encoinsights.com okay, so, so it's a pretty combustible situation this time last year. And then tariffs, you know, Liberation Day happens in April. Friends and allies alike are hit by extraordinary tariffs. Brazil in particular is punished in the, you know, in perceived sort of, etc. Etc. We all know the story, you know that, that then just absolutely nukes the coffee market. Can you, can you sort of tell us how that rolled out and what happened? And I guess it's such a relevant story because coffee, again, it was the first tariff. I don't want to jump the gun that President Trump rolled back because it was so viscerally impacting our daily lives for Americans. Right. But let's, you know, how did tariffs then supercharge those coffee prices? And then we have the virtuous cycle of, of fast money coming in.
- [19:36]
B
Yeah, sure. So when tariff day happened or the ill, ill worded liberation date, what happened was it was indiscriminate, right. So initially it felt like Brazil was only going to go over 10% and then a lot of the Latin American, other countries were 20% and there was sort of no rhyme or rhythm. But either way it was just another, yet another cost on top of a brain, very elevated price that roasters were going to have to cough up. Now when Brazil, Brazil's tariffs started to go up because they were part of the BRICs and that suddenly they went down up to 50%. That became a problem because Brazil is 50% of US import needs. Then on top of that you've got the likes of Colombia which was suffering from 20% tariffs. So suddenly overnight the US roaster could not get hold of coffee from their major suppliers at any kind of reasonable level. And that led to a massive scramble to look for alternative origins, which at a Time when there was already a cumulative shortage led to not just futures prices going through the roof, but also differentials. The cash basis prices were also incredibly high because they just couldn't get it out fast enough. And there was just such an imbalance in the market. And as you said, at that point the funds were already pretty long. Already they'd already seen the tight sds and this was just an additional level that just compounded the whole situation. So cash and futures just continue to stay elevated. The speculators, the particular trend followers pushed it to even higher record highs. And the markets were just really very difficult to navigate because at a certain point you were beginning to realize that there's no, there's a lot of unpredictability on when and who tariffs will start coming off from. So we started to see a lot of complaints amongst the US consumers about the affordability crisis, particularly for coffee. And you know, this idea that why are you tariffing a good that is not produced in the usa? So beginning. So we started to see some lift tariffs being lifted in Vietnam. That's good. Then Donald Trump had an issue with the Colombian president Petro and then suddenly there was threats that his coffees were going to go through the roof as well. And that would have, that just could have caused more knee jerk reactions. And then Brazil, he had this, Donald Trump had this seeming war against Lula because it was, he wasn't happy with the politics and his friend Bolsonaro basically being in prison being kind of his nicknamed as, you know, the Brazilian Trump, if you like, for reasons we'll never necessarily understand, Brazil really was punished, but then so were the U.S. consumers and the U.S. roasters. And we all knew that at some point they had to come down because no one was hurting more than the US Consumers themselves. And eventually last month I think that finally got lifted and the roasters tried to scramble back to see what they could get from Brazil, but Brazil was already pretty well sold out. You know, they, they had a small crop to begin with anyway, so it wasn't as though they were just going to be able to replenish what they needed. This is, this, is this the. While that's going to have to, it's going to be wild before that can be sorted. And that means you're seeing cash prices still very elevated as, as the needs are being met.
- [23:34]
A
So yes, in dollar terms it passes sort of the $400 a bag mark, you know, which is double basically what it was sort of, you know, two years ago. And we're still, you know, as of, as of recording this, it's not gone down that much. You know, just, just, I guess a technical question. Was all of this a price response in anticipation to those tariffs or actually, you know, because some of these, I always find it quite hard to figure out which tariffs kind of were signaled but yet to hit, and other tariffs which hit immediately, like kind of, where are we in that complex web at the moment? You know, have people. Are people today right now still paying those extraordinary. Those tariffs on coffee coming into the country? Like, how quickly, how quickly did these things get enacted and then reversed, if you'd like?
- [24:22]
B
Yeah. So the whole supply chain. So as I was mentioning before, a lot of the roasters have been really hesitant to pass on those tariff costs onto their, to the consumer, because if by doing that, that makes their coffee much more expensive relative to their competitors, and that means risking losing market share. And this is one thing that's really surprised us at home, how roasters care about market share more so than possibly their own margins. So this has surprised us. And to a certain extent, that meant that the US Consumer has been sheltered somewhat from the full effect of the tariffs. Some are going to be passed through, and we've started to see that definitely happening. But it could have been so much worse. And I think they probably just about got away with making the full pass through before the tariffs were lifted again. So I think we got away with the consumers got away with the worst of it. I think they've been sheltered. But, you know, roasters did suffer. They, for sure, they took the brunt of it, but it should slowly start to normalize. And I think with other commodity prices coming off, particularly gasoline, for example, the inflation levels and affordability crisis may be, maybe the average consumer might feel that, okay, you know, what's, what's a bag of coffee? It's not going to hurt me. It's almost one of those affordable luxuries that I will not give up on.
- [25:50]
A
Yeah, but it's just so visceral as well, when your Starbucks costs double.
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B
Right.
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A
Politically, it's kind of like gasoline. You know, it is a very political commodity in that sense. It's one that hits everyone every, every day. I guess the big question here is, you know, and, and so we've had this narrative, you can imagine. I mean, who knows, who can predict what's going to happen with the net, you know, whether, you know, Lula and Trump fall at it, whatever it might be. Right. All of this is still repeatable. And in that sense, and this is a question that Sort of hangs over this entire discussion. Whether we'll get to sugar is another matter because we're sort of 25 minutes in on just coffee. You know, you already spoken of a distressed market in deficit. One that has, you know, structural, absolute biological barriers to being able to respond to price signals in a timely manner compared to other commodities. Has this damaged the market to an extent? We've seen growers fall out of business, you know, you know, not being able to meet their cash, cash flow requirements. All this, I mean a real pain for the growers that actually this will have a three year hangover at the very least. You know, I. E. The time it takes to regrow and replant crops because of the damage done and therefore actually coffee prices will remain elevated for the longer term.
- [27:15]
B
Surprised at the fallout, if you like, of the market in the sense it hasn't been as severe as it could have been. Despite the extra extreme volatility and the prolonged nature of it. We haven't seen too much casualty in amongst the supply chain. I think there are a couple of middlemen. For example, Mercon did get impacted. I think they were worn down. But in terms of the growers, I think they benefited from the immediate escalation in prices that really helped them. So yes, some of them might have lost their crops to frosts and you know, there was obviously the heartache of seeing those burnt leaves straight after the frost died or droughts which caused, you know, again losses in yields. But when you look at the incredible price increase and you know, the pretty transparent way in which, at least in the countries like Brazil and Vietnam, where the farmers really do get rewarded pretty rapidly in these products, which is something which cannot be said for cocoa for example in Ivory coast, which I know we're going to talk about later. But they, they were, you know, the price response has been very favorable to farmers. I think they are going to respond by planting more and looking after their crops more. Those aerogenes that can build acreage and buy more seedlings, that, that is going to happen. I would say the roasters are the ones that have suffered probably more because the, the, the, the coffee beans just weren't there for them and they had to take a hit on the margins. But even there you haven't seen too many crash and burns. I would say, you know, Starbucks was, did probably, you know, from the shareholders, from the share price. Actually if you look at them, they've all done pretty badly.
- [29:09]
A
Folgers, Smuckers, Nestle, Starbucks had their own problems. They did, they did covered Covered, covered in depth at every MBA class around the world at all times. Yeah, I mean I, we've just written a piece for our sort of annual review about, and I sort of titled it Calm before the Storm because there is this sense that kind of commodity markets have once again stepped up and whether, whether you know, have sent the right, you know, done what they do right. They, because they are free markets, it sends price signals and people can respond. But you kind of wonder, you know, it's not necessarily a case of whatever doesn't kill you makes you stronger so much whatever doesn't kill you might just, you know, end up making you weaker and more beaten up and all the rest of it. So you know, another, you never know quite whether another round of tariffs or disruption, whatever it might be, starts to really frat, you know, fracture these, these markets. Well, let's move on to, let's move on to Coco, can you once again do a tour de force on how cocoa ends up in our Easter eggs and in our chocolate money at Christmas? Which I'm very much looking forward to as we speak.
- [30:18]
B
But yeah, I have the privilege of doing the yummiest commodities ever. So cocoa is also a tropical commodity and it is produced, produced predominantly in West Africa with Ivory coast being the largest, followed by Ghana, but also Cameroon and Nigeria. You have also some countries like in Latin America, Ecuador in particular and Brazil and Peru. They also are smaller producers although Ecuador is rapidly advancing. And then you have a couple in Asia of which Indonesia is the largest. So these, these cocoa producers typically unlike coffee or sugar, they are usually smallholder farmers. You know, it's one farm and one man and their farm with a few coca trees. And you know they are, they are typically then producing cocoa which, which has, which are grown in pods and then those, they have beans, those beans then get fermented from the fermentation. You can then produce co. Butter, cocoa liquor or cocoa powder. Those are what you call the cocoa products. Now those can. That conversion from bean to any of these products is what you call grindings which is, which is what in the cocoa world considered part of the consumption side of things. These products then can either be done at origin, you know, as countries like Ivory coast try to take advantage of bit more value added and retain that before they get exported or they are done at the country of destination which typically like coffee is in Europe or the usa and you know, the, the powder is. So cocoa butter is one of the most important products which ultimately gets converted into chocolate. The powder we know gets used into drinks and liqueur is probably the smallest of the three. Sometimes the three can be used interchangeably, but not often, only when prices are extreme. But cocoa butter is the key one which typically is where you get that sort of lovely silky texture of the chocolate that we love. In terms of the biggest trade houses you've got the likes of. So Barry Calibut is a big cocoa producer, sorry not cocoa producer, cocoa product. So they actually consume the beans and convert them into gram, but they also do a bit of trading themselves. Then you have the typical ones like Olam Sookden Kargil is a big one. ADM used to be EDNF man used to be. But they've sold them out. Touton is a big one which Hartree recently acquired. So they, some of them don't just trade the beans, they actually process it and grind them themselves and then they will then ship the products across to the, to the final destination countries. And again the big consumers will typically be the Nestle's, the Hershey's, the Mondelez Cadbury's which is owned by Mondelez, for example, you know, all firm favorites. They've all been suffering from the high prices of their ingredients and working on different, different interesting creative ways in which to navigate the high prices.
- [34:04]
A
Yeah, yeah, I couple of comments I had, I was lucky enough to stay in the place in Panama where they had a couple of cocoa trees and the, the white stuff, the mucilage that's around the in the pod is the most delicious stuff in the world. I don't know if you've ever tried that. But anyway, recommend it to anyone. Be nice if they bagged that up and sold it. And second comment is that, you know, I know I'll get shot for this but to me Hersh's tastes a bit like sick. So that's. But so you know, and then just looking at the prices, right, so you know, cocoa futures are by ton. You kind of, you know, looking over the last 10 years, it's basically had a pretty boring period from you know, the, the 2010s into the 2020s when it was just $2,000 a ton. It looks boring, but I'm not sure if you zoom in, there's lots of volatility there. And then I mean just it. We hit an all time peak twice almost in 2025 of $12,000 a tonne. So a 600% growth in price there on its journey up and down and back up again it hit below 800 and now we're sort of ticking around the $6,000 mark again, still 300% more than standard. I mean an extraordinary jump in prices. Is that all just tariffs or is there something else happened that's caused that?
- [35:42]
B
No. So again this was very much supply demand crunches. The supply shortage for cocoa was a long time coming. So unlike coffee where I was explaining that Brazil and Vietnam are, you know, the farmers are, they tend to get pretty good readings into the world markets and they tend to respond pretty well because the transparency in which the prices come back to them is pretty, pretty good. For Ivory Coast In Ghana, which is more than half the world's production, the situation is really mired by a process whereby the government and have these marketing boards. And while the, while the idea is good and provides some stability to farmers, it okay when prices fall because that means that the farmers get a stable price which is predetermined every year. But when prices spike too high and go way above this predetermined price, then clearly the farmers lose out. And that's exactly what had been happening now even before that. The farmers have been, because they are ultimately poor smallholders, they have not had enough incentive to look after their crops. Their trees are typically old and aging and then when you have climatic variations they become very susceptible to diseases. Swollen shoot disease was one particular disease. That's devastating. I think Ghana at one point saw the risk of more than half of their trees being impacted by this horrible disease really impacts eels. Sometimes the trees just have to just become non producing treatment and you know, pesticide and rejuvenated trees. That's something which is so desperately needed in that part of the world and it just hasn't been coming. And as I mentioned, you know, although you saw you, you've got these twelve thousand dollar per ton type prices. The farmer really only saw a fraction, a decimal of that because that was what was agreed by the cocoa boards because it typically done on the basis of the previous year. So this, so the price mechanism has not worked. The farmers have not looked after their trees properly and there is dire need for proper wholesale growth and expansion planning, yield generation. All of that has to be, has to happen in these countries. And I think that is very much a big part of what the prices have been telling us, that there is proper structural expansion required here for prices to get back sustainably to the low levels which we saw prior to 2019. And it's happening, you know, slowly. We are seeing at least outside of West Africa, you know, Ecuador in particular, they use hybrid varieties. Their yields are fantastic. They can get like 800 kilos, which is almost a third higher than what you get in Africa. So you are seeing expansion in some of these alternative countries. Cameroon has been growing, Ghana might struggle. Ivory coast has started to see a bit of a recovery because of the prices and also it started to be a bit more rainy and the weather conditions have improved and I think that's allowed for a bit of recovery in Ivory coast as well. So compared to 11 point, I think typically they were between 1.8 million and they fell down to 1.5, I think, I think they're looking to recover back to historical levels again. But you know, you're still stuck at this sub 2 million level and it just needs to move higher than that and to meet the kind of demand that the world needs. Hello, I'm David Hunt, founder and managing.
- [39:47]
A
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- [39:49]
B
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- [40:18]
A
Just looking at that price. So is this all things happened at once? Kind of when it rains, it pours and actually the markets were ticking along quite well and then suddenly all this burst onto the scene the last couple of years at the same time tariffs have come in. Is that kind of the story or is, you know, unlike coffee, tariffs haven't really played a big part in this. I'm trying to sort of divine kind of, you know, how those two split out in, in you reaching, you know, a 600 rise in about five days?
- [40:47]
B
No, the, I, I would say tariffs have not been as impactful in cocoa as they have been in coffee. Yes, of course for the chocolate manufacturers, the tariffs were just yet another cost to incur on top of the very high raw material costs they're already incurring. But I would not say they impacted the supply demand dynamics as they did in coffee. They were, the supply crunch was real. It was just a lack of investment coupled with very poor inclement weather, you know, dry weather, poor yields, just lack of husbandry accumulative effect of which meant that the, the stocks were just really, really historically low. You know, you had two consecutive and growing deficits and the lack of stocks, lack of coffee anywhere, sorry, lack of cocoa anywhere, just combined compounded the problem. And then when the speculators came in and started to see these extreme markets, they just went all in and pushed it to extraordinary levels. And you know, this is one of the reason today, despite prices having come down quite a bit, you're seeing a bit of a resurgence in the last couple of months. And that reason for that is because the Bloomberg Commodity Index had decided to include Coco for the first time in their index. So you're seeing quite a bit of index buying for that. Cocoa was never really on the radar. You even had some commodity funds which are typically look at oil like the Enrond. He went all into cocoa. He loved the story. The whole structure was shorter side of things. So it attracted a lot of speculators.
- [42:35]
A
And I definitely think this is Pierre, right? Yeah, yeah, yeah. I mean it, it seems between the two, if you're sort of, you know, if all of us have 100 bucks to put on the market, it would seem that like the, you know, Coco is a, is a, is a more classic story that there's an investment thesis there that actually it will take some time for that, that you know, the, for the market to meet that demand. Demand is going up around the world because of etc. Etc. You know, it's. Whereas coffee, it seems more like actually it can recover. You know, it's a well functioning market typically. Yes, it's having some challenges. Prices never really go back down to the level they were necessarily. But it seems like Coco, you know, again it's sort of. There's no reason why 26 couldn't be as a, as tough a year if indeed we continue to see, you know, global climate velocity change as well as, you know, again, AGs are always sort of AGs and softs are commodities on hard mode because you've got things like diseases and stuff that come into play. And a lot of these things are very resistant to mechanization as well as we covered in, in our tea episode with Jim McDowell. But it seems like actually cocoa might have another bit of a wild ride next year would seem potentially.
- [43:59]
B
I think we're not done yet. It's come off a lot. But I would argue that the reason why we think the markets moved back into a surplus was more to do with demand destruction as opposed to supply expansion. The cocoa demand side have had to be very creative in terms of dealing with these extraordinary price moves. You know the word shrinkflation, that didn't come out of nowhere, that came out of chocolate where your typical chocolate bar became smaller for the same price. Where you started to see things chocolate started becoming having more holes and having more nuts, having more biscuits in them. Anything to reduce those. The adding expensive cocoa into it grindings levels which is the proxy for demand. You know where you process cocoa beans into products. Those, those started take a big hit in the. In late 2024 and into 2025 and only now do we start to see the European grindings and the Asian grindings begin to stabilize a little bit. American grindings were actually not too bad. We get these numbers every quarter. The European grindings were awful. So clearly those companies have had to almost reformulate how they use cocoa. Now is that going to be permanent? To a certain degree but you know, because these producers don't like to mess around with their products too much. As I mentioned it's a very competitive environment and it's all about marketing share. So they don't like to mess around particularly with taste. So some products may never go back to the high cocoa content chocolates that we saw in the past. But and also you know if prices have gone up do you really think they'll come back down unless a supermarket does some heavy promotion? I don't know. It might happen. But anyway back to the point is that the, the deficit turned into a surplus huge part because of the collapse in demand. And as I mentioned you know Ecuador saw a big rebo in growth in response to the prices. Ivory coast as well. Ghana will. Ghana seems to be struggling. Some of the smaller Cameroon, Nigeria but Indonesia are all you know they are. You are seeing some response to the, to the high prices and as long as weather holds that's, that's positive but, but you know weather is only as good as the. We, we only know what's going to happen the next three months really. And after that confidence levels falls dramatically. And we know that those particular origins you know the tropical regions are particularly vulnerable to climatic variations. So who knows what's next at store. And if you do have these variations which impact yields then the varieties have to be changed. And this is maybe what the price are telling us. We need varieties that are more resistance to climate change or, or higher yielding.
- [47:03]
A
Fascinating. Yeah, just worse chocolate basically. Good news for. Well yeah, I won't say good news for her. She'll cut that out. Okay, so we have sort of five seconds for sugar. That's okay though because you told me that sugar had a rather boring year compared to, to the, the other two. What, what's. What has saved sugar from the turmoil and challenges of an opportunity of, of coffee and Cocoa.
- [47:36]
B
So sugar, like coffee, to be fair, did have its own multi, multi year deficits between 2020 and 2024. Yeah, we had about two or three consecutive deficits which led to sugar prices going to 20 cents per pound in New York. And at these levels you start to see a big switch from Brazilians moving away from ethanol production. As you know, Brazilian sugar mills can have, have an optionality of moving between ethanol or sugar production, depending on which one pays better. So the very attractive sugar prices caused those millers to really, really push towards sugar production. So we started to see bigger crops out of Brazil. India had, didn't have necessarily have a great year because of previous dry monsoons, which meant that reservoir levels were low. But I think that is changing. We think, you know, after poor crop this past year, I think that the one for the 25, 26 season looks to be really good. They know the 33 million bags, sorry, thousand, 33,000. Oh God, sorry. 33 million tons. Whereas Brazil should produce a crop of about 41 million tons. So these are good levels and at these, you know, once these start coming out, the market should start feeling a bit more replenished. We're looking at decent build rebuilding of stock levels. Consumption tends not to vary as much. You know, again like, like coffee and cocoa. Sugar demand is pretty inelastic and it's a bit more like grains in the sense that you get big tenders from governments that just need to buy sugar because it's, it's a strategic need. You know, China is a big one in that and some of the Middle Eastern countries buy them as, you know, reserve building but you know, beverages, you know, confectionery. That demand has been pretty steady. Although there's a very big growing argument about the impact of Ozempic and GLP1 drugs. You know, that is something clearly impacting western diets. That trend was already falling. The obesity and health concerns were already seeing demand for sugar falling in Europe for sure, America was less impacted because I suppose it's a younger generation, a lot of, you know, Latino and immigrant community which was still pushing up demand for sugar. But I think this Ozempic introduction of these new drugs could be a game changer eventually as demand for sugary food starts to come down. But either way, whichever way it works, you're seeing a little bit more sugar coming out of Brazil, India, Thailand as well. Europe's had a fantastic sugar beet crop. You know, prices are collapsing in Europe and even though beetle beat acreage might fall next year, I think yields will still look good. I think Thailand is going to have a decent crop as well. And with, with consumption steady to lower, I think we're moving into comfortable surplus in the 25, 26 season that's started. And we are now seeing prices reflect that. They've come back down to the below $0.15 per pound. And there's possibly further downside as we move later into the year. Because my longer term concern for Brazil is that the Brazilian millers are facing a new structural threat from corn based ethanol. Corn based ethanol was very much a US thing. It wasn't so much a Brazilian thing. So now Brazilians have to contend with the fact that you have sugar market that's pretty well supplied and an ethanol market that's also increasingly well supplied, not just from cane, but also increasingly from corn. So they may have to increasingly switch towards producing sugar versus ethanol. And if that's the case, then the markets will be flooded. But that's more of a medium term story.
- [51:45]
A
Yeah, yeah, it seems pretty bleak, right, because you've got, okay, so we are, we're seeing kind of, you know, potential tipping points on EVs. You've obviously in the case of Brazil, you've got BYD moving there and pumping out EVs. You've also got sort of a, you know, foot off the gas excuse the pun on kind of the esg. And you know, there's, there's something somewhat unique about ethanol mandates to the US in terms of supporting farmers. You know, that doesn't seem like that's, you know, a particularly bullish story in general. And then you've obviously got Ozempic, right? I mean like actually there is this backdrop story of huge reduction in calories, particularly kind of confectionery and sugary cereals and so forth in the US and the developed world as, as weight loss drugs are kicking in. So, you know, I don't, I don't feel particularly bullish sugar in, in that sense.
- [52:45]
B
Yeah, I think you're right. Certainly the medium term outlook looks a bit bleak. Short term we still have some physical tightness because Brazil has come, come, come out of a drought like situation which wasn't ideal. But once that's happened and they still start focusing on sugar versus ethanol production, India just needs more of the, they need their domestic sugar price to be higher so they can produce more for the domestic market. Otherwise they will be exporting more. It's just that the, at the moment the export parity just isn't there for India right now. But if the world finds that it does need to Rely on more Indians then they're gonna, the price is gonna elevate to a level which will attract that. But I think you're right, we are moving to a more comfortable situation for which prices are going to probably have to stay under pressure for a while.
- [53:40]
A
Yeah, there you go. I've gone from being a commodities recruiter into making markets which will no doubt be wrong as long time listeners might know from my various escapades and in bad timing on copper and other things. But anyway, well, it's been absolutely fascinating. Thank you for taking the time. It's a fascinating story and I think it's, you know, I'd love to kind of return to it in a year or so and see where we're at because I think there are what we see in the soft market, some of the perils and challenges of the commodity markets more broadly. Especially as we see increasing government intervention and kind of a rolling back of pure market economics allowing, you know, allowing capital investment and so forth. So yeah, it's kind of a. Watch this space and yeah. And hopefully things return to a bit more to normal next year.
- [54:30]
B
But there's nothing ever easy in the tropical commodities market. There's always something around the corner. So. And with climate change and political interference and these new drugs, you know, these are foods which we've always thought were inelastic and now suddenly these drugs mean that they might not be so elastic, demand might be falling. These are new things which we hadn't seen. So yeah, very interesting times.
- [54:55]
A
Yeah, yeah. Back coffee, buy cocoa, sell sugar. Okay, well thanks Kona and have a, have a lovely holiday period.
- [55:04]
B
Thank you so much. Same to you.
- [55:12]
A
Thank you for listening. To find out more about HC Group, our global offices and our expertise in search within the commodities sector, please visit www.w.hcgroup global.