Cocoa grinders are increasing output by the most in two years to meet record demand for chocolate, at a time when declining West African supply means the first shortages of beans in three seasons.
Processing will jump 4.9 percent in the season that began Oct. 1, according to Bethlehem, Pennsylvania-based Commodities Risk Analysis LC, which has tracked the market for 17 years. Chocolate sales will climb 5.7 percent to $108 billion, London- based Euromonitor International Ltd. estimates. Prices will rise as much as 7.3 percent to 1,665 pounds ($2,646) a metric ton in the first half of 2013 in London, according to the mean of 17 analyst estimates compiled by Bloomberg.
Beans yield powder, used in cookies and ice cream, and butter, which accounts for about 20 percent of a chocolate bar. Grinders curbed output this year after powder demand fell and they used stockpiled butter to supply candy makers. Reserves are running out just as chocolate buying accelerates and as harvests in the biggest cocoa growers are crimped by dry weather. Processing will likely expand, according to Barry Callebaut AG, which supplies chocolate to Nestle SA and Hershey Co.
“Cocoa is a good buy at the moment,” said Shawn Hackett, the president of Hackett Financial Advisors Inc. in Boynton Beach, Florida, whose prediction in February for a rally was followed by a 15 percent rebound in three months. “When cocoa powder demand comes back in the first half of next year, the upside rebound in cocoa bean demand will be much greater than it has been in the past.”
While futures have climbed 12 percent to 1,552 pounds a ton on NYSE Liffe since the start of January, they are poised for the lowest annual average in four years. Hackett expects a gain of as much as 40 percent in the first half of 2013 from now, he said on Nov. 7. The last time prices rose more than 40 percent in the first half was in 2008.
The Standard & Poor’s GSCI Agricultural Index of eight commodities advanced 8.7 percent this year as drought from the U.S. to Europe to Australia drove grain and oilseed prices higher. The MSCI All-Country World Index of equities climbed 7.5 percent and Treasuries returned 2.7 percent, a Bank of America Corp. index shows.
Rising chocolate demand will boost profit for Barry Callebaut, which also supplies Unilever, the maker of Magnum ice cream. Zurich-based Barry Callebaut predicted average sales volume growth of 6 percent to 8 percent in the next four years, Juergen Steinemann, chief executive officer, said in a media presentation on Nov. 7. That’s above the long-term average growth of 2 percent to 3 percent for global chocolate sales.