El Niño Fueled Commodity Price Surge Affecting 2024

The year 2023 witnessed a surge in the prices of raw materials exposed to El Niño, with indicators pointing toward a considerable impact on consumers’ spending in the months to come. A renowned food and agribusiness bank has asserted that soft commodities have seen a significant rise from the start of the year.

Prices of commodities like sugar, orange juice, cocoa, and coffee have shot up significantly, attributed partly to the El Niño climate phenomenon. El Niño, which resurfaced this year, leads to a rise in the eastern Pacific sea temperatures and induces storms and droughts. Its effects, often peaking in December, gradually spread worldwide and may push 2024 to be a critical year in terms of global warming.

El Niño has led to dryness in regions like Southeast Asia, India, Australia, and parts of Africa, contributing to this year’s price rise in commodities like coffee, cocoa, and sugar according to Rabobank’s 2024 outlook. The bank projects a steep drop in global food price inflation following the current spike. It also warns about potential adverse effects on some crops from El Niño, while noting possible benefits for crops in the United States, southern Brazil, and Argentina.

Skyrocketing Soft Commodities

Last year, orange juice futures witnessed an impressive 80% surge, reaching an all-time peak in late November. The combined impact of hurricanes and plant diseases eviscerated the citrus crops in Florida. The dramatic rise in prices even exceeded market predictions. A notable statement from trader Dave Reiter of Reiter Capital Investments LLC caused a stir when he mentioned that the anticipated crash in orange juice prices could go down in history.

In addition, cocoa, a critical component in chocolate, saw an increase of 64% due to heavy rainfall impacting West African supplies, coupled with problems like fungal disease. The prices for robusta coffee, too, reached a 15-year high in December, while sugar saw a 13% increase, despite some losses after hitting its 12-year peak in September.

Rabobank’s head of agri commodities market research, Carlos Mera, emphasized a direct correlation between El Niño and rising sugar prices due to the dry conditions it usually brings in major sugar-exporting countries such as India, Thailand, and Australia. While for cocoa the impact of El Niño might be weaker, the particular dynamics of the cocoa market suggest that higher chocolate prices will not immediately dampen demand or encourage production.

Cocoa Market Dynamics

The cocoa industry is known for its forward-selling practice, primarily in the world’s largest cocoa producers, Ivory Coast and Ghana. This means crops are often sold a year in advance, implying that chocolate prices in supermarkets are based on much lower prices set a year ago.

However, Mera expressed surprise that the dramatic increase in cocoa prices has not yet been felt by consumers. He predicts that these costs will eventually be passed on to consumers sometime in 2024. As El Niño continues to shape the global weather patterns, the connection between climate and consumer spending becomes more evident.