Nvidia may get most of the headlines, but the hottest trade of 2024 is shaping up to be a commodity: cocoa.
Cocoa futures have more than doubled to records since the beginning of the year, with prices now approaching $9,000 per metric ton. On Friday, they hit a fresh all-time high, last up 4.4% at $8,940 per ton. Prices are also up more than 10% for the week.
When 2024 began, cocoa was trading below $4,200 per ton.
The reason for this massive surge in price goes back to disruptions on both supply and demand.
Severe El Niño-induced dry weather conditions, reported wildfires and an outbreak of the cacao swollen shoot virus have cut down cocoa supply. Demand has also remained strong in countries such as the U.S., helping companies such as Hershey's and Mondelez better offload rising prices onto consumers.
It appears that these dry weather conditions won't be letting up anytime soon.
Rainy season in the Ivory Coast typically runs from April to October, but the region is currently facing hotter-than-usual temperatures, which could extend its lack of abundant rainfall, Reuters reported. A lack of rain could lead to subpar beans in size and quality, further limiting cocoa supply moving forward.
While West African supply issues sparked the initial move higher, momentum is now a big component of the rise in cocoa prices, according to Jeff Kilburg, CEO and Founder of KKM Financial.
"That additional speculative component of cocoa futures has the ability to exaggerate moves. And I think that exaggeration is currently being priced in because I believe the supply gap or supply disruption was priced in probably 25% to 30% ago," he told CNBC.
He added: "Commodities — which are much thinner volumes, lighter volumes, and not as massively traded as a typical U.S. equity index like the S&P 500 — have the ability for these moves to overshoot. Whenever you see the pendulum swinging too far, there's no rationale on when it's going to turn around."
Kilburg sees no end in sight yet for the rise in cocoa prices. In fact, he wouldn't be surprised if cocoa prices jump another 50% before the rally ends.