Cocoa prices remain resilient despite commodity slump

28-Nov-2008 - Last updated on 02-Dec-2008 at 09:09 GMT

Cocoa prices have proved resilient in the economic downturn, even as other commodity prices have slumped, and confectionery manufacturers are concerned that tight supply will keep prices high for some time yet.

In recent months chocolate has been hailed as immune to the economic crisis, but uncertainties surrounding world cocoa and sugar supplies have seen both commodities on the rise, leading to higher ingredient costs putting pressure on manufacturers.

Chocolate and cocoa manufacturer Barry Callebaut is one of those taking a cautious view. It said in its latest cocoa market report: “Despite its reputation as a ‘recession-proof’ item, few in the industry are willing or able to provide a clear outlook on demand at consumer level for the months to come.”

Cocoa supply deficit

The report also foresees problems with cocoa supply to continue into 2008/09, after a second year of cocoa deficit contributed to high prices this year, which topped $3000 a tonne in June. It cites a wide range of analysts’ estimates for the coming year, however, from a 160 million tonne deficit, to a 65 million tonne surplus.

The reason for this is that market operators are twitchy about cocoa exports from the Ivory Coast, the world’s biggest producer, where strikes and corporate corruption have affected cocoa supply to ports. Political unrest in the region has also contributed to keeping markets on edge and so far trading volumes are low for the season.

The company’s market report for the week ending November 25 said that cocoa bean arrivals at Ivory Coast ports remained “paltry” compared with previous years’ levels.

So far this year, London cocoa futures have risen 33.8 per cent, partly in response to a collapse in the pound’s value, although dollar-based US cocoa is also up 9.7 per cent, according to Reuters figures. Sterling has lost nearly a quarter of its value against the dollar over the past two months.

Sugar futures

Adding to confectioners’ worries, sugar futures have also held firm amid market turmoil. Reuters figures show that raw sugar future prices have risen 6.9 per cent in the year to date, while white sugar is up 2.8 per cent. Output from the world’s two biggest sugar exporters, India and Brazil, is forecast to drop this year with smaller overall harvests.

The outlook is not altogether gloomy for manufacturers, however. Earlier this month Barry Callebaut CEO Patrick de Maeseneire said: “Chocolate is a defensive industry and consumption has proven resilient in previous economic downturns. Indeed, we continued to see good growth in the first two months of the current fiscal year.”

Meanwhile, Mintel has also forecast that the chocolate confectionery market – in the US at least – will continue to grow, at a rate of about four per cent per year over the next six years.