Cocoa now costs more per tonne than copper, parents can tell their children when they hand over a smaller Easter egg this weekend.
Futures prices for cocoa today bubbled up above $10,000 per tonne for the first time, following a 130% increase so far this year - more than Nvidia's 95% gain.
The main ingredient in chocolate started the year at below $4,300 per tonne, but has surged on the back of a dry harvest in key growing areas in West Africa.
Chocolate makers including Cadbury owner Mondelez International Inc (NASDAQ:MDLZ, ETR:KTF) and Hershey Company (NYSE:HSY, ETR:HSY) have warned that the soaring cost of cocoa would hit earnings.
Why cocoa prices have surged
Harvests in the West African nations of Ivory Coast and Ghana have been poor recently due to prolonged dry weather and disease outbreaks, with traders fearing the El Nino weather pattern will mean another bad year ahead.
"It now costs more for a tonne of cocoa than a tonne of copper," said analyst Kathleen Brooks at XTB.
"Chocolate is the new luxury good in town, and we expect that sweet treats will see their prices surge in response to this massive price rise."
Shares in chocolate makers melted on Tuesday, with Mondelez down 1.7% and Hershey falling 1.2%.
Both supply and demand have driven the price of cocoa higher this year, said Brooks, as well as financial market dynamics.
"Reduced supply from West Africa, the main cocoa growing region, along with a boost in demand is putting upward pressure on the price of cocoa. However, the massive $1,500 rally since Friday suggests that momentum and something other than fundamentals are also driving the cocoa price," she said.
Not just cocoa but sugar too
Nidhi Jain, commodity specialist at The Smart Cube, noted that cocoa production is projected to decline by approximately 10% in West Africa this year, and that sugar prices have also surged.
"Like cocoa, global sugar prices have risen considerably in recent months. Driving this is a supply deficit of sugar, caused by the adverse weather associated with El Niño," said Jain.
The weather event has brought dry conditions to India and Thailand – two of the top five sugar producers globally. Jain says sugar output is likely to fall by an estimated 10% and 32% respectively in the year to September.
“Although chocolate costs are yet to surge, largely due to major chocolate producers having purchased the commodities in advance and stocked inventory, prices are likely to increase ahead of Easter. This is because chocolate producers have failed to restock inventory, anticipating cocoa and sugar prices to drop," Jain said.
But she said that as the opposite in fact happened, with cocoa’s value continuing to rise further and further, the supply of both sugar and cocoa dwindles, chocolate makers are expected to raise prices accordingly, passing rising costs onto consumers prior to Easter.
Financial market impact
What's more, says Brooks, cocoa traders who hold long physical positions tend to hedge their risk by using financial markets to take short positions on the price.
"The hope is that any losses made from the hedge is covered by the price increase in the physical position," said Brooks.
"However, if the cocoa traders are buying their cocoa to hold, and the market is going up almost vertically and setting record highs on a daily basis, then margin calls on the short market positions start to add up.
"For those who can’t service their margin calls, they need to close their short cocoa positions, which adds further upward pressure to cocoa prices.
"Thus, agricultural trading firms that trade in cocoa could also be struggling on the back of this massive rally."
The largest cocoa traders include Touton, Cargill and Olam, according to Bloomberg, with traders likely to keep an eye on closely for any warnings that could exacerbate the price action in cocoa even more.
Although cocoa futures pulled back from the $10,000 level, Brooks there is a chance that this is a "structural shift" higher in the price of cocoa, one that might not be alleviated quickly.
"Although a weak crop yield in West Africa has lowered supply, EU regulations that ban the use of commodities that cause deforestation means that the key European chocolate market now needs to find compliant sources of cocoa, which could add costs to the system.
"This regulation comes at the same time as the supply deficit has reached a record high of more than 400,000 tonnes.
"Thus, the high price of cocoa could be here to stay, and chocolate treats in the future may be considered a luxury and a lucky-to-have, rather than an affordable must-have product. For some of us chocoholics, that is a very depressing thought."