Costs to ease for confectioners in 2009

05-Oct-2008 - Last updated on 06-Oct-2008 at 15:55 GMT

After two years of spiralling upward costs, an easing in soft commodity prices across the board could reduce manufacturing input costs for confectioners.

Chocolate makers, however, remain vulnerable to the upward shift in price for cocoa in recent months, despite some relief in cost over past weeks.

"The input cost outlook for food companies is stabilising, and perhaps, as we look into 2009, improving," finds a new report from Credit Suisse.

Indeed, the suggestion of a rosier picture is compounded by the report's assertion that "most of the food companies achieved decent price rises in 2008, and [going forward] the outlook for industry margins should be relatively bright".

With doom and gloom dominating the headlines in North America, recession starting to bite in members of the European bloc, and recent financial turmoil erupting from the US and sending shock waves through boardrooms worldwide, the report from Credit Suisse proffers a glow of optimism.

The outlook centres on the notion that prices in 2009 for key raw materials may ease.

And in a further note of optimism, the report states that "as cost bases stabilise or even fall, this should free up more money to re-invest in promotions and marketing to help maintain revenue growth".

Edible Oils

Edible oil prices have dropped sharply over the last three months. Palm oils alone, used in a multitude of food applications, has fallen by 35 per cent since June after reaching a peak of $1300 a ton in April this year.

Rapeseed oil is down by nearly 15 per cent over the same period, falling from about $850 a ton in April, to just over $700 a ton in September this year.

And both are now down year to date, claims the report.

Grain

Derivatives of grains, such as starch, which is used by confectioners, show some relief in price for the raw materials. Corn is "10 to 25 per cent off its early summer peak, although still up both year to date and versus the same period last year," writes Credit Suisse.

Costs for US corn hit a high of about 700 US cents a bushel in July this year, since falling to about 560 US cents a bushel.

Wheat is "a more positive story", down on price both year on year and year to date. The reports states: "in addition, cereal harvests look as though they will be better than expected in Europe, driven by good harvests in the EU, Russia and the Ukraine".

Dairy

Dairy prices have stabilised for the last few months at prices well below the peaks of early 2008.

According to the report, global skimmed milk powder prices are 35 per cent lower than the highs and are about 20 per cent down year on year. Prices reached an all time high in July 2007, rising to more than $5000 a ton. In July this year, the price came in at just under $3500 a ton.

The fall in costs for this valuable commodity should be aided by lower feed wheat prices going forward into 2009, and could be the key to helping dairy farmers keep their costs down.

Cocoa

The report notes that compared to "many other agricultural commodities" the rise in cocoa prices in 2007 was "relatively modest". But this year, increases have been far steeper - prices are up more than 30 per cent year to date, and more than 40 per cent year on year, "partly over worries about the political stability of the Ivory Coast," says Credit Suisse.

Last week, ConfectioneryNews.com reported that while costs for cocoa have fallen from a peak of $3000 per tonne in July to $2551.33 on 29 September, reports of the damaging black pod disease in the Ivory Coast could drive prices upwards, compounded by political uncertainty that may see chocolate buyers eager to build stocks.

The Ivory Coast is the biggest global supplier of cocoa, contributing 38 per cent of this much sought-after soft commodity to the marketplace.

But with the new cocoa campaign on the horizon, prices are set to react to news that persistent rain in some of the country's key cocoa areas could encourage the onset of the virulent fungus Black Pod.

Contributing to the price equation are the upcoming national elections in the Ivory Coast, which take place on 30 November.

Packaging costs

With the fall in crude oil costs over recent weeks, Credit Suisse's packaging index is 15 per cent lower than "a month or two ago", despite the fact that the firm's index – that includes plastics, paper and tin – is up more than 15 per cent year on year, and about 10 per cent year to date.