KANSAS CITY — It may be a small player in the vast global fats and oils market, but coconut oil has been making large moves in recent months, with US prices spiking near 150¢ a lb in early April, about 127% higher than the most recent five-year average, according to data collected by Sosland Publishing Co.     

“Coconut oil has been incredibly strong over the last several months as production has tightened up for key exporters and demand has remained steady,” said Alex Norton, president at Beeson & Associates, Inc.

The edible oil derived from the inner matter of the brown tropical fruit has many commercial uses in the food and industrial sectors, including baked foods and cosmetics. But adverse weather in Indonesia and the Philippines, the world’s top coconut oil producers, has affected production. In its April 10 Oilseeds World Markets and Trade report, the US Department of Agriculture forecast 2024-25 global coconut oil production at 3.65 million tonnes, down 6% from 3.9 million tonnes in 2023-24. Meanwhile, demand for the product continues to strengthen, supporting a price jump of 87% in the United States from values reported a year earlier.

One of the leading factors driving demand has been the surge in cocoa bean prices. In December, the nearby US ICE cocoa futures contract catapulted to a record $12,931 per tonne, up 177% from the same period the year prior. Since then, values have backed away from peak levels but continue to remain well supported on reports of crop shortages and cocoa-grind data indicating persistently resilient consumer demand for cocoa-based products.

In an effort to salvage profit margins and control input costs, many confectionery and chocolate food manufacturers started reformulating products with viable substitutions. Coconut oil, with its comparable melting properties and similar mouthfeel attributes, is an established alternative for many cocoa butter applications. While coconut oil prices have risen sharply in recent months, it remains a discount compared to cocoa butter prices. And with chocolate products typically containing about 30% cocoa butter, the cost savings is significant. Also, the US government allows terms such as “chocolate flavored” or “chocolately” on product packaging that use cocoa butter equivalents to achieve a chocolate-like sensory experience in “compound” products while limiting cocoa-based ingredients.

Palm oil is another industry-accepted substitute for cocoa butter. Like coconut oil, palm oil is a lauric fat and offers similar sensory and melting qualities needed in cocoa butter applications. But palm oil’s value also soared to exorbitant levels in December, the same period cocoa prices shot to record highs. Palm oil values have begun to ease but concerns about limited production due to weather impacts and hastily shrinking stocks may keep palm oil prices well supported. Also, palm oil’s connection to deforestation issues has deterred many food manufacturers, especially those promoting clean or sustainable ingredients, from adopting this alternative.

Despite its popularity, expanding coconut oil production is a difficult endeavor, which is another factor supporting recent price hikes. Like the oil palm fruit, coconuts grow on trees in tropical areas where primitive vegetation and forests would have to be removed to plant more coconut trees.

“Growers are not able to add acres from year to year in response to higher pricing like we see with row crops,” Norton said. “It takes several years for these trees to reach maturity and production. Additionally, environmental and deforestation concerns and laws often make expansion difficult or impossible.”