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Euromar drags down European cocoa grind as global market set for surplus

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By Oliver Nieburg+

Last updated on 19-Jan-2017 at 16:12 GMT2017-01-19T16:12:12Z

Global cocoa market set for supply surplus in 2017/18, says ICCO, as Europe's Q4 grind shows slight decline Photo: iStock
Global cocoa market set for supply surplus in 2017/18, says ICCO, as Europe's Q4 grind shows slight decline Photo: iStock

European cocoa processing volumes declined in the fourth quarter after processor Euromar became insolvent; the global cocoa market is also expected to enter a supply surplus.

Fourth quarter cocoa proceeding in Europe was down 0.89% to 339,379 metric tons (MT), according to the European Cocoa Association, which collates data from 21 grinders such as Nestlé, Barry Callebaut and Cargill.

Below expectations

Laurent Pipitone, director of the International Cocoa organization's (ICCO) economic division, told ConfectioneryNews:"Most of the market expected a small increase, not a decline.

"One of the parameters that we knew would reduce the potential in Europe was the situation for Euromar."

German cocoa processor Euromar filed for bankruptcy and suspended operations in August 2016 after taking a position on the London futures market that proved costly when the pound weakened after the UK’s Brexit vote.

Its parent company, the Transmar group - which supplies firms such as Nestlé, Hershey and Mars - also filed its US subsidiary, Transmar Commodity, for bankruptcy earlier this month.

Weak pound

The German cocoa grinder was consequently down 10.1% in Q4 to 94,910 MT, according to German confectionery association BDSI.

Pipitone said other processors that had taken positions on the London futures market failing to anticipate Brexit and the decline of the pound may also have suffered.

"Users of cocoa are based in continental Europe more than the UK, so their main currency is euros, so when the price changes in pound sterling terms it may affect their business,” he said.

Low cocoa prices

Cocoa prices were trading at $2,235 per ton yesterday, according to the ICCO's average of the three futures trading markets. This is the lowest level since March 2013, based on the ICCO’s monthly averages of daily prices.

Major cocoa user Mondelēz International recently raised prices on select UK products and pointed to rising commodity costs, including cocoa.

"We had record high cocoa prices last summer," said Pipitone. "Until July-mid-August, prices were relatively high. Then we had a dramatic decline in cocoa prices by about 30% between mid-August and the end of the year."

He said the recent price plummet was driven by a greater availability of cocoa due to favourable weather conditions. 

Surplus projections

"For this current cocoa year, we expect a cocoa production surplus, which will be relatively large,” continued Pipitone.

"While the main concern in the past few years was about a structural supply deficit, now the market is moving towards a different view and that's been the main driver in driving down cocoa prices in recent months,” he said.

The ICCO will release its projections for the current cocoa year next month. Market analysts are predicting a surplus of between 150,000 MT and 250,000 MT, but Pipitone says it may be slightly lower.

Unfounded 2020 forecasts?

Around 2010, industry players came together to predict a cocoa shortfall of 1m metric tons (MT) by 2020 with Mars, Barry Callebaut and Blommer Chocolate all making public announcements.

"We have always said this was not possible," said the ICCO's Pipitone. "Our view was that the market would be balanced."

The ICCO's executive director Jean-Marc Anga said in 2014: “Sometimes the industry may be tempted to amplify the prospect of a supply deficit for its own purpose.” i.e. to lower prices.

But Pipitone said that the 2020 prediction was made while the market was "in crisis" and concerned by the aging cohort of cocoa farmers, and aging cocoa trees.

The US National Confectioners Association (NCA) will report North America cocoa processing figures for Q4 later today.

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