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Surging supply projections do little to suppress cocoa prices

By Michelle Knott , 13-Sep-2011

Surging cocoa supplies did little to prevent front month prices for cocoa (cocoa futures) creeping up by 4 per cent throughout August, according to Euromonitor. “The big surprise has been that this rise has taken place on the back of strong supply projections,” said senior foods analyst Francisco Redruello.

Exports from Ivory Coast are up by almost 30 per cent from last season, while Ghana is set for a record-breaking crop. Ghana previously indicated that it aimed to reach one million tonnes of production in the 2012/2013 season, but output is now set to surpass that target by the end of the 2010/2011 season.

Christian Walter, managing director of Ferrero UK, told ConfectioneryNews.com that historic shortages are one of the factors keeping prices up: “There have been shortages in the past and the stocks need to be built up.”

Powder vs. butter

A further apparent anomaly is that prices for cocoa butter are low, while cocoa powder remains buoyant.

Redruello believed that the answer to this lies on the demand side, where the market for cocoa powder is not as closely bound up with the chocolate confectionery business: “Cocoa powder has a wider range of applications in products such as chocolate coatings, bakery products and hot drinks. Demand for these products in emerging economies continues to grow steadily. Take chocolate hot drinks, for instance. We predict an increase of almost 8,000 tonnes in 2011 in Latin America.

But he added that there is also good reason to be positive in confectionery: “Demand for dark chocolate with a higher cocoa powder content in developed markets continues to grow, despite difficult economic conditions.”

Walter agreed that chocolate confectionery is holding up reasonably well: “The global market for chocolate confectionery is growing by between 1 and 2 per cent on average, with a little more growth in the US and a little less in Europe. But an increase of 1 or 2 per cent is still a lot of product. We feel the outlook is positive for cocoa without expecting any huge increases to come.”

Grindings figures

Cocoa grindings figures are sometimes used as a barometer of the level of demand pulling cocoa through the supply chain. Grindings in both Europe and North America increased in the second quarter of 2011, with the European Cocoa Association reporting an 8.3 per cent increase in activity and the national Confectioners’ Association reporting an increase of 6.22 per cent for North America.

However, this apparent predictor of major growth is an illusion, according to Walter: “There was a halt in grinding in Ivory Coast during the export ban. You’d normally say that grinding increases as demand increases but this is to do with a transfer of activity, not increased consumption.”

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