What all-time high chocolate prices can tell us about the ASX share market

It may be the day of love, but record cocoa prices aren't helping quell signs of inflation.

Woman thinking in a supermarket.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

It's Valentine's Day! You know what everyone probably wants to do today? Talk about inflation! Chocolate prices recently hit all-time highs. I think that can tell us a number of things about today's ASX share market.

Chocolate prices see an unwelcome spike

According to reporting by CNBC, cocoa prices hit an all-time high last week because of deteriorating weather conditions and disease challenges, which hurt crop production in the African countries of Ghana and the Ivory Coast.

Those two countries are responsible for almost two-thirds of global production.

Cocoa futures have reportedly jumped around 40% since the start of 2024, reaching an all-time high of US$5,874 per metric tonne.

David Branch, senior vice president at Wells Fargo Agri-Food Institute, said:

What's really driving all of this is basically this El Nino that's in place right now. It's really affecting the crop.

Chocolate prices are going to be higher. Product manufacturers are just raising the margins and telling the retailers to eat it, and they have to try to sell it at a higher price.

What this tells me about the ASX share market

Firstly, I think it says that the inflation story is not completely over yet.

We heard earlier this week that the US consumer price index rose by 0.3% in January, according to CNBC, which was more than expected. It was driven by shelter prices increasing by 0.6% over the month, which made up more than two-thirds of the increase. Excluding volatile elements, the core CPI went up 0.4% for the month and 3.9% (compared to expectations of 0.3% and 3.7%, respectively). The US Federal Reserve is aiming at a target of 2% annual inflation.

With (ASX) share market investors seemingly pinning their hopes on multiple rate cuts this year, that view may end up premature. It's possible there could be multiple cuts in Australia this year, but it's also possible there may be no cuts at all. Remember, Australia's interest rate is materially lower than the US, the UK, New Zealand and Canada.

Ultimately, share prices should be representative of what's happening with a company's profit and growth. A lot of share prices have risen over the last few months, so they need to report numbers that justify the valuation.

Look at what happened to Commonwealth Bank of Australia (ASX: CBA), it reported that net profit after tax (NPAT) declined amid strong competition, and that sent the CBA share price lower. Some retailers have managed to beat forecasts.

Also, remember interest rates should be influential on asset prices. We haven't seen this RBA cash rate for a long time, yet share prices are generally at/close to all-time highs. Even a reduction of the RBA cash rate to 4% or 3.5% would mean it's much higher than where it was in 2019.

I do think business profits (and share prices) can climb over the longer term, and I continue to see long-term opportunities in certain places. But, I also believe investors should be careful about some industries and some valuations if the aim is to beat the market's return.

If we look carefully, there are definitely still some appealing ASX share market opportunities.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Opinions

A man sits thoughtfully on the couch with a laptop on his lap.
Opinions

Why I'm buying more of these 2 ASX stocks ahead of earnings season

I've been excited about buying these investments.

Read more »

Business women working from home with stock market chart showing per cent change on her laptop screen.
Opinions

1 month until ASX earnings season begins: how I'm preparing

It’s almost reporting time. Here’s what I’m looking at.

Read more »

a man sits at his desk wearing a business shirt and tie and has a hearty laugh at something on his mobile phone.
Opinions

Potential buys: 2 compelling ASX shares I like

These ASX shares have an exciting future.

Read more »

Smiling man at the wheel of a car.
Opinions

2 ASX auto stocks to buy — and 1 to sell: experts

Analysts have shared fresh insights into 3 ASX auto shares -- and not all of them are in the buy…

Read more »

A male investor sits at his desk pondering at his laptop screen with a piece of paper in his hand.
Opinions

ASX retail share whose 'fundamentals have deteriorated significantly': expert

Christopher Watt from Bell Potter explains his views on this former market darling.

Read more »

A young woman looks at something on her laptop, wondering what will come next.
Opinions

3 soaring ASX 200 large-cap shares that are now overvalued: experts

Two experts say this trio of ASX 200 large-caps have overshot and it's time to take some profits.

Read more »

Man sitting in a plane seat works on his laptop.
Opinions

Expert reveals 2 ASX stocks to sell — and 1 is a recent IPO

Toby Grimm from Baker Young shares his insights.

Read more »

An analyst wearing a dark blue shirt and glasses sits at his computer with his chin resting on his hands as he looks at the CBA share price movement today
Opinions

Expert's verdict on 3 ASX 200 shares (2 have doubled in value and the other has lost 29%)

Two of these stocks were the best performers of their sectors in FY25. Should you buy, hold, or sell?

Read more »