Cocoa breaks $10,000 record, with pricier chocolate to follow

Cocoa futures surged above an unprecedented $10,000 a ton, extending a historic rally that s already seen prices double this year and which is raising...

Cocoa futures surged above an unprecedented $10,000 a ton, extending a historic rally that’s already seen prices double this year and which is raising the cost of chocolate.

The market is being rattled by poor crops in key West African growers that has put the world on course for a third straight annual supply deficit. The industry is grappling with the legacy of poor returns paid to cocoa farmers and fears are mounting about being able to source enough beans.

As well as concerns about scarce physical supplies, pressures are also building in the financial market, where some traders have sold futures to hedge against physical holdings. But as they wait for the contracts to mature they need cash to meet margin calls on losses on derivatives, and in a rising market can be forced to close out short positions, helping to fuel the rally.

Futures jumped as much as 4.5% to $10,080 in New York on Tuesday - a level that seemed unthinkable only a few months ago. The rally has pushed a technical gauge of prices into overbought territory for much of the last couple of months, though cocoa has continued to soar.

"When we’re at this price, it’s hard to tell whether these prices are justified,” said Paul Joules, an analyst at Rabobank in London. "Whenever we have a dip in the market, it seems to shoot straight back up, which is more to do with the commercials, they’ve been net buyers.”