QUOTE AND NEWS
Benzinga  Jun 26  Comment 
September Cocoa traded higher after a steady open and settled at 3322, up 54. December Cotton was trading at 67.48, up 2.10, extending gains from early in the session. Sugar futures settled a little higher after a choppy trading session on...
Benzinga  Jun 26  Comment 
Benzinga  Jun 26  Comment 
Agrimoney.com  Jun 26  Comment 
The bank cuts its arabica coffee price forecast, noting improved Brazilian harvest prospects, and says slowing demand is curtailing the cocoa rally
Benzinga  Jun 25  Comment 
September Cocoa traded lower after a firm open and settled at 3268, down 14, near the lows of the day. December Cotton was trading higher at 65.57, up 0.98, erasing early losses. Sugar futures traded lower for most of the session on Thursday....
Benzinga  Jun 24  Comment 
N.Y. Cocoa futures are trading steady with little change during early trading on Wednesday morning. September Cocoa is trading at 3248, down 03. Market chatter continues about tight West African supplies, weather and arrivals at the Ivory Coast...
Benzinga  Jun 23  Comment 
Coffee futures traded choppy on Tuesday moving higher early on before erasing all the day's gains and settling the day near the lows of the session. September Coffee settled at 129.70, down 2.80. September Cocoa traded lower after a steady open...
CNNMoney.com  Jun 23  Comment 
Chocolate lovers, beware: prices could go up this summer just like last year.
Benzinga  Jun 23  Comment 
Cocoa futures are trading a little lower Tuesday morning. September Cocoa is trading at 3264, down 18. Market talk continues about tight West African supplies. Market chatter that rain over the last couple of days has backed up cocoa beans to...
Benzinga  Jun 22  Comment 
Sugar futures traded firm on Monday and settled near the high of the day. October Sugar settled at 11.94, up 0.39. September Cocoa traded choppy and settled higher at 3281, up 21. Coffee futures traded choppy and ended the session near the...
Benzinga  Jun 22  Comment 
Cocoa futures are trading steady to a little lower Monday morning. September Cocoa is trading at 3245, down 15. July Cocoa is trading at 3256, down 14. Chatter about Asian demand concerns has led to some selling. Market talk about tight West...




 


This article is about the commodity in general. For the futures contract traded on the ICE see Cocoa Futures.

Americans consume about 3 billion pounds of chocolate annually, but consume less per capita than Europeans. Sixteen out of twenty of the top chocolate consuming countries (per capita) are European. Chocolate consumption is seasonal. People tend to consume more chocolate during Winter time. Prices for chocolate have nearly doubled since 2006, due to crop shortages, and increased consumption of chocolate (especially of dark chocolate, which requires more cocoa). [1]

Chocolate must be processed from cocoa powder, cocoa butter, and sometimes other oil products. Companies like BT COCOA, Barry Callebaut, Cargill, and Archer-Daniels-Midland Company (ADM) buy cocoa in bulk from Cote d'Ivoire, Ghana, Indonesia and a few South American countries, then process and sell it to confectioners like Hershey Foods (HSY), Nestle (NSRGY), Mars, and Cadbury Schweppes (CSG) , to melt, mold, and package. Demand for chocolate directly creates the demand for cocoa, while the supply of cocoa is contingent on the production of African and South American farms.

Currently, the world's top five cocoa producing nations are the Ivory Coast, Ghana, Indonesia, Nigeria and Cameroon, which together account for 70% of global cocoa production each year. [2]

In July 2008, demand for cocoa powder exceeded supply more than it has for 20 years as companies placed increasing numbers of orders for cocoa powder while suppliers were producing less. This situation means that prices of cocoa will increase further until increasing chocolate prices decrease cocoa consumption and lower demand. Supply and demand of cocoa are measured by the stocks to grinding ratio. A low ratio means that there is not a lot of cocoa powder to sell and grinders are working at capacity to meet demand. [3] As of June 2008, cocoa prices had risen 50% from the previous year, hitting a 28 year high. [4]

The chart at left shows spot prices for Cocoa on the intercontinental exchange.

Companies that stand to lose from higher cocoa prices

  • Hershey Foods (HSY) and Cadbury Schweppes (CSG) buy chocolate from the Archer Daniel Midlands company, and other wholesalers. Another publicly traded confectioner which relies on cheap cocoa prices for good mark-ups is the Rocky Mountain Chocolate Factory (RMCF). One executive analysis notes that large confectioners can only pass about 80% of raw material costs to customers. They absorb the other 20% of the costs on their income statement.[5]

What factors increase the price of cocoa?

More demand for chocolate

More demand for chocolate increases the price of cocoa, which is chocolate's primary ingredient. Demand for chocolate increased by 20% between 2002 and 2007, as measured by consumption. [6]

Increased standard of living in India and China are creating demand for chocolate bars, which used to be considered an elite luxury item. Because of their massive populations, these countries could drive up demand for chocolate and increase the price of cocoa. Chocolate consumption in India, China and demand has been increasing by 15-20% annually. [7]

Mandatory Improvement in African Labor Standards

If the the world's governments act against child slavery and widespread human rights violation in Cote d'Ivoire and Sub-Saharan Africa, the price of cocoa will rise. Below poverty wages and the use of child labor keeps the price of harvesting cocoa down. Reports of up to 200,000 child slaves busy harvesting cocoa has raised humanitarian pleas, but no significant action has yet been taken to improve working conditions in the Ivory Coast.[8]Once the humanitarian crisis in Darfur is resolved, the UN will have more resources to deploy in Africa. Cote d'Ivoire would be a logical next step for intervention. When workers receive proper wages and working conditions, African production costs will increase, and raise cocoa prices.

Conflict in the Cocoa Rich Ivory Coast

Intervention in the Ivory Coast (and Africa in general) is made difficult by regional instability. Cote d'Ivoire almost had a civil war in 2002, and is still in a precarious political situation. The country also produces 46% of the World's cocoa. If conflict breaks out, expect cocoa prices to go through the roof due to destroyed or unharvested crops and damaged shipping infrastructure in Africa.

Soil Erosion, Drought, and Disease

Small crops in cocoa producing countries lower the supply of chocolate. World chocolate consumption is increasing, so the price of cocoa increases. Destructive diseases, such as black pod disease, and adverse weather patterns have plagued cocoa yields in Africa for the past 15 years, losing growers $700 million annually. [9]

This year, adverse weather and disease have struck once again, and cocoa prices have skyrocketed due to shortage. Due to an overabundance of rain, Cote D'Ivoire is expected to produce 1.1 million metric tons of cocoa for 2008/09, down 20% from last year's 1.38 million metric tons. Indonesia is also expected to produce less cocoa this year, at 490,000 metric tons (down 5,000 from last year). Production increases in Ghana and Cameroon can't close the gap, and worldwide cocoa production is expected to drop 7% to 3.456 million metric tons for the 2008/09 crop year.[10]

The director of Ghana's Nature Conservation Research Council, John Mason, believes that African cocoa may be extinct in 20 years due to irresponsible growing practices and resulting soil erosion in Africa. [11]

Increasing Focus on Antioxidants

Increased publicity of cocoa's antioxidant content may entice people who value their Health & Wellness . Cocoa contains far more antioxidants (which can prevent stroke, cancer, and heart disease) than any other food. For a while, people were encouraged to drink red wine for the antioxidants. A cup of cocoa has twice as many antioxidants. [12]

What factors decrease the price of cocoa?

More Demand for Non-Chocolate Sweets

More demand for other sweets that could substitute for chocolate could lower cocoa prices. This demand for other sweets may arise precisely because of increased chocolate prices, though. These sweets could include cakes, hard candy, and non-chocolate cookies.

Genetic Research Boosting Cocoa Supplies

Not nearly as much genetic research has gone into cocoa as other foods. The Mars Company is spearheading research into the cocoa genome to make more pest, disease, and sun-resistant cocoa crops. Cocoa used to grow best in well shaded areas, until genetic research made cocoa plants considerably more sun-resistant. African farmers also need to implement better crop rotation, and farming techniques to improve their yields. [13] As cocoa farming becomes more technologically advanced, there will be more cocoa on the market, driving prices down.

Cocoa Futures Contracts



<autowikidata/>

Notes

  1. The World Atlas of Chocolate
  2. "Chocolate Cravings" - Hard Assets Investor, 9/10/09
  3. Confectionery News
  4. Confectionary News Reports Skyrocketing Cocoa Prices
  5. Cocoa Price Absorption
  6. Growth of Chocolate Demand
  7. Asian Chocolate Consumption Spikes
  8. Child Slavery in the Chocolate Industry
  9. Drought and Cocoa Crop Damage
  10. "Chocolate Cravings" - Hard Assets Investor, 9/10/09
  11. Chocolate Production Could Halt Due to Soil Problems
  12. Cocoa Has Major Antioxidant Content
  13. Avoiding Chocolate Extinction
Wikinvest © 2006, 2007, 2008, 2009, 2010, 2011, 2012. Use of this site is subject to express Terms of Service, Privacy Policy, and Disclaimer. By continuing past this page, you agree to abide by these terms. Any information provided by Wikinvest, including but not limited to company data, competitors, business analysis, market share, sales revenues and other operating metrics, earnings call analysis, conference call transcripts, industry information, or price targets should not be construed as research, trading tips or recommendations, or investment advice and is provided with no warrants as to its accuracy. Stock market data, including US and International equity symbols, stock quotes, share prices, earnings ratios, and other fundamental data is provided by data partners. Stock market quotes delayed at least 15 minutes for NASDAQ, 20 mins for NYSE and AMEX. Market data by Xignite. See data providers for more details. Company names, products, services and branding cited herein may be trademarks or registered trademarks of their respective owners. The use of trademarks or service marks of another is not a representation that the other is affiliated with, sponsors, is sponsored by, endorses, or is endorsed by Wikinvest.
Powered by MediaWiki