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As Cash.ch reported, towards the end of October prices for orange juice concentrate, cocoa and olive oil had reached all-time highs. It was even more surprising that the rise in cocoa has continued at a breathtaking pace since then.
The price of cocoa beans on the New York Mercantile Exchange, the leading futures exchange for agricultural products, rose from $3,705 on October 24 to an all-time high of $6,010 on February 13, 2024. $5,431 in the last few days – but this still represents a 46 percent increase over the period studied.
The price of cocoa is currently at its highest level since 1970 and is at a new record high. Jack Scoville, market strategist and analyst at Price Futures Group in Chicago, sees no end to the cocoa bull market for now. One of the main reasons for the price increase is fears that hot, dry weather will threaten crops in West Africa this year. The only silver lining is that very high prices may still leave a mark on demand.
It’s too early for a decline in demand
Commodity strategists at ING Bank in London are also wondering how high prices could go. “Cocoa prices need to reach a level where we will see a significant drop in demand. “We are already seeing some of this, but it is clear that it is not enough to rebalance the market and address the shortcomings.”
In response to a request from Cash.ch, the company Lindt & Sprüngli writes that cost increases in raw material prices have been partially offset by efficiency increases and process improvements in production facilities as well as a forward-looking purchasing strategy. “The remaining costs were transferred through price increases; the main reason for the price increases in 2023 was the high cocoa price,” notes Lindt & Sprüngli.
The chocolate maker from Kilchberg has not seen a decrease in sales in 2023 due to increased final sales prices. “Despite this challenging environment, mild volume and mix growth in 2023 shows that our customers remain loyal to Lindt & Sprüngli despite price increases.”
The high price of cocoa does not bode well for consumers
Looking at the UK, we see how inflation in the food sector affects desserts in particular. Cadbury, a subsidiary of the Mondelez food group, has increased the prices of its Christmas chocolate by 50 percent between 2022 and 2023, according to a consumer watchdog report. The overall price increase for chocolate products in the UK averaged 15.3 per cent.
In the last two years, chocolate manufacturers have not had to deal with rising cocoa prices; Sugar, energy and transportation costs also skyrocketed. As in previous years, the majority of higher prices are passed on to consumers. But Hershey, one of the world’s largest chocolate companies and maker of products such as Reese’s Peanut Butter Cups, has warned that cocoa prices will likely dampen profit growth this year.
“Given current cocoa prices, we will use every tool in our toolbox, including price increases, to move our business forward,” Hershey CEO Michele Buck said during a recent quarterly earnings presentation.
Unlike Lindt & Sprüngli, which has so far managed to maintain sales and margins thanks to its premium products, Mondelez, together with Hershey, announced a month ago that significantly rising costs of cocoa and sugar will be one of the biggest challenges in this period. year. Annual price increases of 50 percent, such as those for Cadbury products, are looking increasingly impractical. The first signs of a slowdown in Christmas business in terms of volume were evident.
Barry Callebaut hardly benefits from record prices
Barry Callebaut, the second largest company in Switzerland, is listed on the stock exchange and should benefit from the rise in cocoa prices. But statements from potential customers such as Hershey and Mondelez show that it is not so easy to achieve further price increases and sell more chocolate bars to customers.
Sales figures for the first quarter of the 2023/2023 financial year between September and November confirm this: Barry Callebaut managed to maintain sales, but overall volume fell.
The growth dynamics in terms of volume under these conditions leaves much to be desired, a trader told Cash.ch. Another negative impact at Barry Callebaut is the loss of confidence due to long-term personnel changes and the negative impact of overly optimistic volume and cost forecasts of the past.
The company faces a bumpy future until the first fruits of its “BC Next Level” restructuring program are reaped. Barry Callebaut will now need to confirm the goals it expressed in November before it can move on. The company said at the time that sales volumes at constant exchange rates should be about the same as last year. Cash Insider commented on Barry Callebaut here today.
The market expects a cocoa deficit for the third consecutive year
Lindt & Sprüngli can reach much better prices than its competitors with its premium products. The outlook for cocoa prices is also likely to remain problematic, as the situation on the price front is likely to continue to deteriorate throughout 2024.
Africa is vital to the global cocoa market, with 73 percent of global supply coming from the West African region. Ivory Coast is the largest producer, accounting for 44 percent of global supply. Ghana, the second largest producer, accounts for approximately 14 percent of world production.
Higher-than-normal rainfall last year has raised concerns about its impact on crops as cases of black pod disease have increased. Heavy rains also caused problems in delivering cocoa to ports. But this year, drier weather conditions and strong harmattan winds are raising concerns about the development of the current crop.
According to ING Bank, the problem with the cocoa market is that it was already in a deficit environment in the previous two seasons, and as a result, global stocks reached their lowest level since the 2015/16 season. According to the International Cocoa Organization, the global market recorded a deficit of 216 thousand tons in 2021/22 and 99 thousand tons in 2022/23.
“And with the sharp decline in West African production in the current 2023/24 season, the market will face a significant third deficit of almost 400,000 tonnes, bringing stocks to their lowest level in at least a decade,” ING Bank said. Annual production is expected to be 4.9 million tons in the 2023/24 season.
Chocolate remains expensive
This means that any hope that chocolate might become slightly cheaper again for Christmas 2024 or Valentine’s Day 2025 is fading. Things don’t look good in the medium term either. There are concerns about the impact on the 2024/25 season, as the cocoa regulator in Ivory Coast has suspended pre-sales for the 2024/25 season. That is until there is clarity on how the harvest may develop next season.
As bitter as it may be, many chocolate lovers or their loved ones will likely have to dig deep into their wallets in the future to give away the coveted chocolates and other tempting sweets. Last year and again this year, chocolate was one of the most popular gifts for Christmas and Valentine’s Day.
Lindt & Sprüngli will publish its 2023 annual results on 5 March 2024, while Barry Callebaut will publish results for the first half of 2023/2024 between 5 March and 9 April 2024.
Source :Blick
I’m Tim David and I work as an author for 24 Instant News, covering the Market section. With a Bachelor’s Degree in Journalism, my mission is to provide accurate, timely and insightful news coverage that helps our readers stay informed about the latest trends in the market. My writing style is focused on making complex economic topics easy to understand for everyone.
