Daily Commentary

MarketMinder’s View: This is how commodity price spikes usually resolve themselves—and shows why the cure for high prices is high prices, not government meddling with price caps or rationing. Since the article mentions specific companies, please note MarketMinder doesn’t make individual security recommendations; the case-study examples provided are for illustrative purposes only. So what did chocolate purveyors do when cocoa prices soared? “After cocoa prices nearly tripled to above $12,000 a metric ton in 2024 thanks to adverse weather and disease, chocolate makers began shrinking bar sizes, adding more wafers, fruit and nuts and introducing chocolate alternatives. They also drew down cocoa stocks, raised prices and ramped up investments in products like ChoViva, a cocoa-free chocolate alternative made from sunflower seeds and oats. ... That caused a sharp drop in cocoa demand that experts say drove a 70% drop in bean prices from their late 2024 peaks. Demand could hit nine-year lows in the 12 months to end-September, said Steve Wateridge, a veteran analyst and leading world expert on cocoa. The fall in cocoa prices should, however, lead to a recovery in demand starting in the second half of the year, he said.” When prices of things you like or need skyrocket, it is frustrating to say the least. There is seldom any immediate fix or switch you can flip to quickly bring prices back to where they were (otherwise they wouldn’t have leapt to begin with). In cocoa’s case, it took more than a year before a combination of supply responses (efficiency drives to make limited stocks stretch further while innovating with “chocolate alternatives”) and demand reactions (substitution and less consumption) let prices come back down again. In the meantime, some may impatiently call for government intervention to control prices or limit transactions in some manner. But this rarely works because it doesn’t address the root supply-demand issues. Any intercession without that will backfire, likely worsening the problem and delaying the solution. High prices are the signal, and incentive, for producers to make more or find alternatives—the only lasting way to ultimately reduce prices for commodities that people continually demand. For more on puffed-up prescriptions for supply problems markets routinely solve better on their own, please see Elisabeth Dellinger’s 2024 column, “The Bittersweet Truth About Cocoa Speculation.”

MarketMinder’s View: Some positive news in global trade, as the UK struck a deal with the Gulf Cooperation Council (GCC, consisting of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates) Wednesday to remove or lower tariffs on both sides. While details remain scarce, “autos, aerospace, electronics and food and drink would be among the sectors to benefit, with cereals, cheddar cheese, chocolate and butter all becoming tariff-free.” Huzzah! We think freer trade is always a net economic benefit, helping lower costs and increase opportunities for corporations and individuals alike. Yet these deals’ market implications tend to be minimal. The UK government estimates the deal will be worth around £3.7 billion ($5 billion) per year (per FactSet) for its economy—peanuts next to the UK’s roughly £2.8 trillion GDP last year. Besides, deal implementation also tends to move quite slowly, fading into the background for stocks, with this one taking effect gradually over 10 years. Oh, and tariff news—positive or not—just doesn’t influence markets like it used to, so we wouldn’t expect this to be a massive tailwind for UK stocks. Overall, this is just more evidence of global trade outside the US loosening more than a year after Liberation Day.

MarketMinder’s View: Since this gets political, please note MarketMinder is nonpartisan, preferring no party nor any politician over others, and focuses solely on developments’ potential market ramifications. As the short article summarizes upfront: “The UK government will legislate to grant Parliament the authority to directly approve major clean energy projects, a sweeping change designed to shield vital infrastructure from judicial reviews and accelerate economic growth.” While streamlining permitting processes to bolster Britain’s energy infrastructure may seem like a no-brainer, the actual projects (power lines, wind and solar farms and nuclear plants) tend to inspire grassroots opposition in local communities, which can tie them up in litigation. Curbing this would theoretically cut developers’ costs and give them more confidence to invest, which can spur growth (though we wouldn’t overstate this). But we also doubt whether this passes or stalls in Parliament will be a huge deal for UK markets. Even expedited grid additions could take years to complete—marginally more electricity supplies probably won’t light up British stocks much. The significance probably lies more in how this debate shapes the ruling Labour Party’s potential leadership contest, as it could feature in the by-election campaign Manchester Mayor (and would-be Labour leadership challenger) Andy Burnham is contesting in June to attempt to re-enter Parliament. His main challenger, the populist Reform UK, opposes these plans. This could prove to be a wedge issue of sorts. Stay tuned.