Oil Price Changes and … Why?
The prices for coconut oil and cocoa butter have recently been all over the map. Cocoa products essentially doubled and coconut oil increased about 12%. Understanding why and how won’t stop the pain but it may help you explain to your customers what is going on.
Agriculture
You can read this whole thing to understand more but the bottom line is that if you are buying organic ingredients, you are buying agricultural products that are farmed by humans. This means seasonal changes to prices. These are not coming from oil wells but from human labor in open fields subject to the whims of the weather and human greed.
The following is a bit of a deep dive but sometimes it helps. Suffice it to say – prices will change over the next few years in response to climate change and the economy. Hold on to your socks folks!
Cocoa Products (including cocoa butter)
The largest supplier of cocoa products is West Africa. First we have climate change messing with normal weather patterns: droughts then extraordinary rain then high winds in 2023 and 2024. Crop yields were already down from last year. The largest cocoa trade group in the US (International Cocoa Organization (ICCO) reported on February 29 that the projected global 2023/24 cocoa deficit would widen to -374,000 MT (metric tons). Last year the deficit was (only) -74,000 MT. On top of this, “futures” traders are jumping into the game and probably driving up the prices even more. Additionally, the producers have not invested in planting new trees. Farming is just like any other business; one needs to invest with an eye to the future and this is often not done in developing economies.
For cocoa it is climate change/weather (El Nino), crop condition, and greedy commodity traders that doubled the price. For organic cocoa there are further restrictions because there are fewer organic farmers. It should be noted that the same weather systems that hurt West Africa probably played a part in the droughts in the Med that drove down the yield of olives and increased the price of the oil.
Coconut Oil
Organic Coconut, on other hand, is a simpler story. Coconut trees set and mature nuts about every 45 days. Then the nuts are harvested, opened and the meat is removed. It is dried (to remove moisture) and the coconut meat is them pressed for the first stage of crude oil. Because the organic pool of farmers is smaller, this means it takes longer to accumulate the minimum run for the processing of the refining stage of the organic oil. A minimum run is about 88,000 lbs (40 metric tons) or two ocean containers full of totes or drums. A container holds about 80 drums of oil to give you a picture.
The prices for coconut oil are set once per quarter (so they cover 2 or 3 harvests). Frequently the cost of the coconut oil goes up due to monsoon season (May to Oct).
Bottom line – the cost of coconut oil directly reflects the impact of monsoons, which are more frequent and harsher due to climate change. Then the price comes down again. For the 20 years we’ve worked with coconut it appears that the prices go up in the Summer and down in the Winter.
Seeds crops, like sunflower or safflower or sesame are stored after the seeds are harvested. This means that the prices are less volatile: we know what the harvest is and can anticipate oil prices. Sunflower is looking good this year!
Copyright - April 3, 2024
