Explore highlights from our recent Commodity in Focus webinar, where our experts unpacked the effects of disruptive weather and EUDR in soft commodity markets.
In soft commodity markets, changes in the weather significantly impact supply, demand, and prices. From intense droughts to extreme rainfalls, production and supply chains can easily be disrupted, creating knock-on effects throughout global markets.
In the latest edition of our Commodity in Focus series, we focused on four soft commodities – cocoa, sugar, frozen concentrated orange juice (FCOJ), and coffee – to show what this disruptive chain looks like.
During the session, experts from The Smart Cube offered detailed overviews of each market, made predictions for their futures, and unpacked the key factors affecting them – including the La Niña weather pattern and the European Regulation on Deforestation-Free Products (EUDR).
You can still watch the full session on demand to get a complete picture of all the commodity markets. In the meantime, we’ve captured the key takeaways for cocoa and FCOJ below.
Extreme weather conditions are disrupting the production of key commodities and creating all-time-high prices
It’s been a disruptive 12 months for the cocoa and FCOJ markets, with both experiencing different – but equally extreme – weather conditions that have slowed production.
West Africa, for instance, provides more than 70% of global cocoa supplies. But in the past year, unseasonally high rainfalls have limited fieldwork, delayed harvests, and made it difficult for farmers to dry cocoa beans. The rainfall has also spread swollen root disease across key growing countries such as Ivory Coast, and black pot disease has impacted around 43% of the cocoa-producing areas in Ghana.
Meanwhile, locations such as Brazil and Florida – responsible for producing 85% of global FCOJ supplies – have experienced severe droughts, floods, and hurricanes.
Brazil’s rainfall between July 2023 and March 2024 fell by 24% compared to 2022, reducing orange production by 2.2% year on year. In Florida, production fell by 62% in the same year due to Hurricane Ian damaging already struggling crops and a significant outbreak of citrus greening disease infecting orange trees.
While cocoa and FCOJ experienced opposing ends of the weather spectrum, they’re both great examples of how significantly meteorological events can influence the price of soft commodities. With limited cocoa supplies and slowed production, cocoa prices peaked at GBP 10,000 per tonne in April 2024 – an all-time high.
Similarly, FCOJ prices have been increasing for the past two years, surpassing their long-term trading range of USD 90-225 per pound in early 2023 and surging to a historic high of USD 487 per pound in May 2024.
La Niña will change the course for cocoa and create new challenges for FCOJ
Following a disruptive couple of years for the cocoa and FCOJ markets, the upcoming La Niña weather pattern will create further changes; a welcome recovery for cocoa, but more disruption for FCOJ.
La Niña is one of the three phases of the El Niño-Southern Oscillation (ENSO), which covers the periodic fluctuations in sea surface temperatures across the central and eastern tropical Pacific Ocean.
For southern regions, including Florida and Brazil, La Niña typically creates drier-than-normal conditions. This includes reduced precipitation, which can lead to water stress for orange trees, affecting their growth, fruit development, and overall health. Due to these factors, FCOJ production isn’t likely to recover quickly, and prices are expected to remain elevated in 2025, with a range between USD 475-565 per pound.
In West African countries, including Ivory Coast and Ghana, there will likely be plenty of moisture during the La Niña phase, helping cocoa crops and production lines recover. Following this, we can expect cocoa prices to return around GBP 5200-5575 per tonne in 2025.
Our recommendations for the cocoa and FCOJ markets:
- Procurement leaders should wait and buy cocoa on the price dip in mid-2025, as prices are expected to fall next year.
- Consider entering longer-term contracts for FCOJ. Prices are only expected to increase, and with supply chain disruption predicted, locking in a lower price and stable supply now could protect you from higher costs down the line.
EUDR – a unique challenge for the European cocoa market
While the cocoa market is set to become much less volatile, it isn’t without its challenges.
Unlike the FCOJ market, cocoa – along with commodities such as coffee and palm oil – will be affected by the recently implemented EUDR. Introduced in June 2023, the EUDR aims to ensure that products traded and consumed in Europe are deforestation-free.
The regulation demands companies submit due diligence statements that include product traceability and reporting. Importers must also do a risk assessment and plan mitigation measures to avoid any conflict with the regulation.
EUDR has gained a lot of attention due to its high penalties for non-compliance. Companies that break the regulation could face shipment confiscation, fines of up to 4% of their annual turnover in the EU, and potential exclusion from the European market.
Cocoa accounts for around 60% of the traded goods in Europe, and its production is mostly made up of small farm owners who lack the resources to provide detailed source information, creating difficult challenges for companies importing the commodity.
Due to these challenges, cocoa prices may rise in Europe alone as importers struggle to navigate EUDR. And it could even have a knock-on effect elsewhere; if importers can’t accept non-compliant shipments, they’ll be shipped elsewhere, leading to a greater supply and lower prices in other regions.
Our recommendations for staying compliant:
- Stay engaged with updates to the regulation and invest in long-term farm mapping and supply chain traceability.
- Long-term investments in West African countries could help create a sustainable supply chain, while continuing to provide access to the European market.
- Consider implementing an integrated risk management and due diligence process into all levels of your operations to ensure compliance and efficiency.
- Identify alternative sourcing destinations to avoid reliance on a single supplier.
Get a closer look into the soft commodity markets with the full session
This is just a snapshot of two commodities covered in the webinar. In the full session, experts from The Smart Cube unpacked the coffee and sugar markets, gave a detailed breakdown of the complete effects of La Niña, and offered strategic advice on how to navigate all the soft commodity markets over the next year.
Even if you’re not operating in the soft commodity markets, the experts had some valuable tips for any procurement leader managing supply chains prone to disruption.
We’ve captured the full session here – watch it now to ensure you’re prepared for the year ahead.