Higher cocoa prices are having a dampening effect on demand according to figures published by the European Cocoa Association.
Second-quarter cocoa grinding in Europe declined by a surprising 3.2% year-on-year. Market participants surveyed by Bloomberg had previously envisaged an increase of 2%.
Reviewing the figures, Commerzbank Research said the last time any quarter had shown a year-on-year decrease in cocoa grinding was at the end of 2016. “Grinding margins have come under pressure due to the steep rise in cocoa prices since the end of March – this has had a dampening effect on grinding,” it said.
The cocoa price in New York surged to a 12-month high of just shy of US$2,600 per ton in early July, while the cocoa price in London reached £1,940/ton – its highest level since May 2018.
In June, the price of cocoa in New York passed the US$2,500/ton mark for the first time in almost a year and is currently trading slightly below this level.
Cocoa prices have risen significantly after sales in Côte d’Ivoire and Ghana for next year’s production were halted, while talks were underway to agree on a minimum price.
A minimum price seemed to have been agreed – US2,600/ton from 2020/21 – which is slightly above the current level and above the current purchase price of US$2,400/ton from the Ghanaian Cocoa Board, which in addition to paying farmers also includes storage, transport and the provision of inputs.
However, national regulators in Côte d’Ivoire and Ghana subsequently announced their desire to change the market price to an absolute premium of US$400/ton on the stock exchange price, which removed the supposed consensus and created further uncertainty in the market. In addition, there were reports of transport problems in Côte d’Ivoire caused by heavy rainfall. However, there is currently no shortage of cocoa.
According to the International Cocoa Organisation, the season 2017/18 closed with only a small surplus of 9,000 tons. It had estimated a surplus of more than 100,000 tons but adjusted this significantly cut due to dryness in West Africa and robust demand.
“In the current 2018/19 season the ICCO expects a somewhat higher surplus,” said Commerzbank, “however, it recently lowered its estimate slightly from 39,000 tons in February to 36,000 tons because it raised its projection for grindings slightly more than for production. The overall picture did not change significantly, however.”