Chocolate rush hits record as cocoa shortages loom

Combined Ratio

Grinders’ profitability is determined by the prices of powder and butter divided by the cost of beans, the so-called combined ratio. That rose to 3.13 on Nov. 9, from as low as 2.76 in May, Commodities Risk Analysis data show.

Cocoa demand will exceed production by 101,000 tons this season, Macquarie Group Ltd. estimated in September. Rabobank International predicts a 122,000-ton shortfall. Global output will drop 2.9 percent to 3.85 million tons, led by smaller harvests in Ivory Coast, Ghana, Indonesia and Nigeria, Macquarie says. The four nations produce 74 percent of the world’s beans.

The shortages will be among the topics analyzed by the International Cocoa Organization at its first-ever summit in Abidjan, Ivory Coast, on Nov. 19. The London-based ICCO, which has 41 consuming and producing member nations, is expecting 1,000 people to attend, according to Jean-Marc Anga, the executive director of the ICCO and a native Ivorian.

Emerging Markets

The supply deficit may worsen as accelerating growth in emerging markets spurs demand. Advanced economies will grow 1.5 percent next year as developing nations expand 5.6 percent, the International Monetary Fund predicts. That’s reflected in Euromonitor’s forecasts for a 5.2 percent gain in Asia-Pacific chocolate demand by volume, 4.6 percent in Latin America, 1.3 percent in Western Europe and little change in North America.

Economies are also the biggest threat to the predicted gain in prices. Grindings fell 6.5 percent in 2008-2009, the biggest decline since at least 1960, as the global economy endured its worst recession since World War II, ICCO data show. Retail sales of chocolate contracted 1.3 percent, led by a 5.6 percent drop in North America, according to Euromonitor. Western Europe accounts for 32 percent of global chocolate demand, followed by North America at 20 percent, according to adviser KPMG LLP.

Chocolate Sales

Global chocolate sales growth by tonnage was 1.5 percent this year, down from 2.2 percent in 2011, Euromonitor data show. Growth will rebound in 2013 to 2.2 percent and 2.3 percent the following year. Chocolate consumption and grindings were disconnected this season as processors used stockpiles, said Steven Haws, founder of Commodities Risk Analysis who has followed cocoa since 1979.

The IMF cut its 2013 global growth forecast in July and October and the economy of the 17-nation euro area probably tumbled back into a recession in the third quarter, the median of 25 economist estimates compiled by Bloomberg show. The U.S. also risks returning to recession unless lawmakers resolve the so-called fiscal cliff of automatic tax increases and spending cuts scheduled to start in 2013, Fitch Ratings said Nov. 8.

“There has been a pretty good link between global GDP growth and the growth of chocolate consumption in the last 20 to 30 years and I don’t think you can just throw that link away,” said Jonathan Parkman, the co-head of agriculture at Marex Spectron Group in London. “Unless there is a stronger-than- anticipated recovery in global GDP growth, I don’t see where the surprise is going to come from in chocolate consumption.”

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