Consumers should brace themselves for a steep increase in prices of raw materials in the coming months. Experts from Rabobank, a specialist food and agribusiness bank, predict that the rally in soft commodities, such as orange juice, cocoa, coffee, and sugar, which has been fueled by extreme weather and concerns related to El Niño, will have a direct impact on consumers’ wallets. The El Niño phenomenon, which occurs when sea temperatures in the eastern Pacific rise above the long-term average, can result in more storms and droughts. This year, El Niño has caused dryness in Southeast Asia, India, Australia, and parts of Africa, thereby contributing to the price rally of soft commodities. As a result, prices of sugar, cocoa, and coffee have soared significantly. While sugar prices have already been passed on to consumers, the price of chocolate is expected to escalate at the retail level due to El Niño.
El Niño’s impact is expected to peak during December, with the full effects usually taking some time to spread globally. This delayed effect has led forecasters to predict that 2024 may be the first year in which the world surpasses a critical warming threshold. Rabobank’s annual outlook for 2024 warns that El Niño may have adverse effects on several crops early next year, particularly in Southeast Asia, India, Australia, and parts of Africa. However, some regions, such as the United States, southern Brazil, and Argentina, may benefit from El Niño. These regions could experience improved crop conditions due to the weather pattern. Rabobank predicts a significant decrease in global food price inflation after years of soaring prices but cautions that certain crops may still be negatively affected by El Niño.
Notably, orange juice futures witnessed an astounding 80% increase in 2023, reaching an all-time high in late November. This surge in prices was driven by hurricanes and disease outbreaks that severely impacted citrus crops in Florida. The unexpectedly high prices for orange juice have left experts like trader Dave Reiter of Reiter Capital Investments LLC in awe, with Reiter expressing surprise over the “$4.00 orange juice” and anticipating that its eventual crash would be one for the record books. It is truly staggering to consider the profit potential from this trade.
The price of cocoa, a crucial ingredient in chocolate, rose by 64% this year, reaching 46-year highs. The main contributors to this surge were heavy rains and issues such as fungal diseases that affected supplies in West Africa. Meanwhile, the price of the robusta coffee variety soared to its highest level in 15 years on December 15th. Sugar prices also experienced a 13% increase in 2023, despite a slight decline since registering a 12-year peak in September.
Carlos Mera, head of agri commodities market research at Rabobank, emphasizes a clear relationship between El Niño and higher sugar prices. The weather pattern typically leads to drier-than-normal conditions in major sugar-exporting countries like Thailand, India, and Australia. Consequently, the reduced sugar supply drives up prices worldwide. However, Mera notes that the impact of El Niño on the cocoa market is likely to be “much weaker.” This is partly attributed to the cocoa industry’s practice of forward selling, where cocoa is traded a year in advance. Therefore, the high cocoa prices experienced now may not be immediately felt by consumers, as most chocolate products currently on the market were bought at a much lower price a year ago.
Consumers should be prepared for a significant increase in prices of various raw materials, including sugar, cocoa, coffee, and orange juice, due to the impact of El Niño. The extreme weather patterns caused by El Niño have led to supply concerns and subsequent rallies in soft commodities. While the effects of El Niño are expected to manifest more prominently in 2024, current conditions have already driven up prices. Despite the surge in cocoa prices, the impact on chocolate prices may be delayed due to the cocoa industry’s trading practices. However, the rally in orange juice prices has exceeded all expectations and is likely to have long-lasting effects. Ultimately, consumers must be wary of the potential impact on their wallets as they face the consequences of El Niño’s influence on raw material prices.