Chocolate rush hits record as cocoa shortages loom

Forward Sales

First-half prices are also at risk because of pre-harvest sales by the top growers. Ivory Coast, accounting for 37 percent of supply, introduced a policy in January of state-backed forward sales to give farmers a price guarantee that is 60 percent of the world market value. Ghana has a similar program and the two are creating an unprecedented amount of supply in futures markets for the period and that may cap a rally.

The “small contraction” in global cocoa processing last season may reverse this year partly because of emerging market demand, said Laurent Pipitone, the head of the ICCO’s economics and statistics unit. The ICCO will report the revision during the conference next week in Abidjan. It last forecast growth of 0.4 percent in processing for 2011-12.

European bean grindings slid 18 percent in the second quarter and 16 percent in the third, Brussels-based European Cocoa Association data show. North American grindings fell 9.8 percent in the second quarter and 2.2 percent in the third, the National Confectioners Association in Washington estimates.

Butter Inventories

Cocoa-butter inventories have contracted enough to spur factories to raise output, according to Hackett. Barry Callebaut also expects grindings to accelerate, Steinemann told journalists on a conference call Nov. 7. European powder prices dropped 19 percent this year as the relative cost of butter jumped 38 percent, Commodities Risk Analysis data show.

There may be fewer beans for the grinders to buy. Ghana will produce less for a second year and Ivorian output will drop to a three-year low after dry weather, Macquarie forecasts. As much as 40 percent of the global crop is lost to pests and disease every year, according to the ICCO. An average cocoa tree produces about 30 usable pods a year, yielding enough beans to make about 2 pounds of dark chocolate, according to the website of Hershey, the maker of Hershey’s, Reese’s and Kit Kat.

Bullish Bets

Cocoa inventories with a valid grading certificate in warehouses monitored by NYSE Liffe dropped 39 percent this year by Oct. 29. Money managers increased bullish bets almost 14 times since March 6, when speculators began betting on higher prices, exchange data yesterday show.

Barry Callebaut will report an 87 percent gain in net income to 265.8 million Swiss francs ($280 million) in its fiscal year ending in August, based on the mean of 10 analyst estimates compiled by Bloomberg. Its shares dropped 1.4 percent to 913 francs in Zurich trading this year.

“We’ve been in a recession or some degree of slowdown for four or five years now, so the initial shock has passed and people are getting on with things,” said Lee Linthicum, the head of food research at Euromonitor. “Before if you went to a dinner party, you would bring a box of Ferrero, but now it’s perfectly acceptable to bring a box of private label. That’s supporting volume sales regardless of the economic uncertainties.”

Bloomberg News


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