By Debbie Carlson

People who put chocolate and coffee at the top of the food pyramid recently got a shock: Prices for both zoomed higher due to poor global harvests and strong demand, shattering records set way back in the 1970s.

Although prices have since moderated, they remain well above long-term averages, and Judy Ganes, founder and president of JGanes Consulting, doesn't expect relief soon. Tree-crop production bounces back slowly, she says, and climate change is hurting tropical crops. Tariffs will compound the price pressure on the "soft" commodities that Ganes follows -- cocoa, coffee, cotton, sugar, and orange juice.

Gaines, a 40-year veteran of the commodities market, was a senior analyst at Merrill Lynch and Shearon Lehman before launching her own food and agricultural consultancy in 2001. She recently spoke with Barron's about the outlook for cocoa and coffee, and why Florida orange juice has become a misnomer. An edited version of the conversation follows.

Barron's : Just what does a commodities consultant do?

Judy Ganes: I still write reports similar to those I wrote when I worked at Shearson and Merrill Lynch, providing market insights and guidance. I tour farms, attend conferences, and teach courses on futures, options, and risk management. In producer countries, I do boots-on-the-ground research, talking to farmers and others in the supply chain to understand their issues. I also study trends in the consumer market, whether in packaging or cafes and grocery stores. It is a constantly changing landscape.

What do commodities tell us about the broader economy?

They are the first stop in the supply chain. Consider cotton: It is the starting point for apparel sales and home goods such as bedding. There's a long lead time from buying raw cotton to putting finished goods in stores. If demand for cotton slows, it is a signal that upstream demand isn't good. That tells us something about the outlook for gross domestic product.

I also view things from the opposite direction. The 2008-09 financial crisis began with a downturn in the real estate market. As I saw the Florida housing market slow, I thought this is going to be really bad for cotton prices. If people aren't moving, they aren't buying linens or redecorating, and demand will fall.

Almost everyone loves chocolate, so let's take a look at the cocoa market. Cocoa prices are nearly triple 2023 levels, but off their highs. Why do they remain elevated?

This is the third consecutive year of a production, or supply, deficit, caused mainly by reduced output in West Africa. Inclement weather caused it, but there are other concerns, including a high incidence of swollen-shoot disease in both the Ivory Coast and Ghana [which currently produce about 50% of global supply]. There is no cure for it. The trees have seen declining yields, having reached peak productivity already. The nutrients in the soil are depleted, which also leads to increased risk from disease outbreak.

To meet demand, world supplies have been drawn down to the lowest level since the 1970s. Prices have responded, and are now about three times the all-time high set back then. Cocoa is trading for nearly $8,000 a metric ton on the ICE Futures US exchange. Cocoa has had a hyper bull move, beginning in the second half of 2023, that has reflected panic in the market.

Prices are coming down a bit because there is an expected bounce in production for the next season, but production isn't going to rebound fully.

Structural issues in the cocoa industry have also exacerbated the problem. What happened?

The industry has backed itself into a corner. Like many other industries, there has been increased reliance on a few suppliers that now account for the majority of world production. There has been a long history [of disease problems in several producing countries] that was ignored in the cocoa industry.

Another distinguishing factor is that the Ivory Coast and Ghana, by far the two largest producers, aren't free markets. They have old-fashioned cocoa boards. The boards buy up the production from the farmers and sell it to the major international players. They set the farm gate price -- what farmers will receive -- before the season begins.

Ghana also has illegal gold mining, and with the price of gold soaring, miners are bulldozing cocoa farms. The worst part is, mining operations on the cocoa fields are ruining the water. They are creating a toxic dump. It ruins the lives of the farmers.

Finally, climate change is affecting production. The industry was caught blindsided, but it shouldn't have been.

How are chocolate manufacturers coping with historically high prices?

The majority of chocolate is consumed around four holiday seasons: Halloween, which has also morphed into back-to-school candy-sales season; Christmas and Hanukkah; Valentine's Day; and Easter.

Manufacturers have long-term coverage [they hedge price changes via the futures market], and some have commitments to buy physical cocoa at certain prices. Manufacturers were protected from rising prices for most of this past year, but the cost to maintain hedges has become exorbitant as futures prices rise. [Futures trade on margin, a percentage of the contract's total value that acts as a good-faith deposit ensuring that the trader can meet his obligation. When the price of the underlying commodity becomes volatile or rises, the exchange increases the amount of money needed to maintain hedges.]

Chocolate manufacturers aren't entering into as many long-term futures contracts now because it is too risky with cocoa prices at higher levels. They are operating a little more hand-to-mouth. They have raised retail prices, as well. This Easter will mark the first holiday when the price of chocolate sold hasn't been protected by hedging at much lower levels. Manufacturers are resigned to the fact that the base price of cocoa, at least for now, is going to be higher than what they are used to paying, but they will manage.

How so? Is demand for chocolate elastic?

We are seeing a combination of consumer choice and manufacturers' changes. Manufacturers are reformulating and repackaging products, so buyers are consuming less. You're being put on a diet. And you are making a conscious decision that instead of buying this bag of chocolates that formerly cost $5.99 and now costs $10.99, you might buy something else.

For a while, manufacturers resisted cutting back on ingredients because they didn't need to. Now, they may replace cocoa butter with an alternative oil, substitute some of the butter, use compound chocolate, put fewer chips in a cookie, shrink the size of the Easter Bunnies, and so forth. That all happens with high prices.

One by one, most of the large manufacturers are introducing new products that are chocolate-y, but have less chocolate.

Coffee futures traded at all-time highs in February, also surpassing records from the 1970s. Prices have doubled since last June. What pushed them higher?

Like cocoa, world stocks are historically low. High temperatures in Brazil, the biggest arabica producer, have been more prevalent in recent years, and rainfall was below normal yet again last year during a critical development period when the beans form. Global warming is impacting Brazilian production. Vietnam, the largest robusta coffee producer, was affected by drought, but its production is now better. Sales have increased, and prices have recovered some. If there is a renewed weather problem, prices can spin higher on a dime.

Should coffee drinkers brace for a parabolic price rise like the one seen in cocoa?

You can't ignore the problems, but there are two types of coffee, arabica and robusta. If there are supply problems with the more expensive arabica coffee, roasters will opt for the next-best coffee or switch to using more robusta. Brazil, Vietnam, and Colombia are the top three coffee producers, but the market isn't as dependent on them as the cocoa market is on the Ivory Coast in Ghana.

Before President Donald Trump's 90-day tariff pause, imports from some cocoa- and coffee-producing countries were hit with steep tariffs. The U.S. put a 21% tariff on goods from the Ivory Coast, and a 46% tariff on goods from Vietnam, the biggest robusta coffee grower. Brazilian goods have a 10% tariff. How have commodities markets reacted to the tariff news?

Prices have declined to offset the increased tariffs, and to reflect the angst about how demand may be negatively impacted. Already, the countries with the highest tariffs imposed have asked to renegotiate, and are willing to play ball with the Trump administration.

There is a multiplier effect on tariffs. The more the product changes hands in the supply chain, the greater the cost to the final consumer. Cocoa and coffee are shipped "cost insurance and freight," meaning the shipping cost includes customs clearance and taxes and tariffs. The final price is known as the landed cost. Margins are based on a percentage of the landed cost. Everyone in the supply chain takes a 7% margin to cover their costs and profit.

If you start with a dollar's worth of coffee, the importer, supplier, and roaster each add their 7%. The roaster also must make up for any loss in volume on the purchase price of green coffee beans. Typically, there is an 18% volume loss after coffee beans are roasted, so the sales price to retailers must also be increased by the volume loss. Given the purchase price of an item, plus shipping, taxes, and profits, the consumer could pay significantly more.

A 46% tariff on coffee from Vietnam would add an extra 76 cents per dollar to the consumer's cost, based on my calculations.

Orange juice prices have fallen about 50% from recent record levels. What caused the plunge?

Consumer lifestyle changes have been pushing demand lower for years, except for a brief respite during the pandemic. Demand cratered recently as a result of record prices.

After the tariff threats, [former Canadian Prime Minister] Justin Trudeau said Canadians won't need to drink Florida orange juice. But there is really no such thing as Florida orange juice anymore because we produce so little. Consumption is down, and there is disease proliferation; citrus greening [a bacterial infection] has no cure. Fifteen years ago, Florida produced 242 million 90-pound boxes of oranges. This year, the state is producing 11.5 million. Land that had been planted with citrus is being sold off. Brands manufacture here, but most of the juice comes from Brazil and Mexico.

Conventional investment wisdom suggests a 5% allocation to commodities. The agriculture-focused Invesco Agriculture Commodity Strategy No K-1 exchange-traded fund and the broad-based abrdn Bloomberg All Commodity Strategy K-1 Free ETF are two ways to invest. Any advice for retail investors interested in the commodities you cover?

Funds are one approach because you're paying a specialist to invest, but you need to do your homework because commodities are more volatile than stocks. Timing is everything. You could have the right idea, but if your timing is off, then it doesn't matter.

Investing in commodities depends on your risk tolerance. Cotton and sugar currently have more upside than downside and reduced volatility compared to coffee and cocoa.

Thanks, Judy.

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April 16, 2025 18:25 ET (22:25 GMT)

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