Cocoa demand won’t pick up ‘until late 2015’

(Agrimoney) – Cocoa demand is to remain depressed, hurt by historically high prices, veteran consultant Judith Ganes-Chase said, forecasting that a rebound in consumption will not kick in until late in 2015.

Cocoa markets have been sluggish following a flurry of weak grind data.

Cocoa grinding, which represents demand from producers for raw beans, dropped globally in the October-to-December period of 2014. Asian grinding was down 17.2% year on year to the lowest level in at least three years.

Grinding in Europe, the largest processing region, was down 7.4% over the same period, with processor demand also down in North America

And, with prices remaining above $2,800 a tonne on New York’s futures market, Ms Ganes-Chase of J Ganes Consulting forecast that an imminent revival in demand was not on the cards.

“The high prices will discourage use” of the bean, she said.

With margins for converting from beans to the cocoa products, butter and powder, “unattractive, a recovery in grind isn’t expected immediately”, she said.

‘Fears of ebola’

The urgency for processors to buy beans is also being depressed by the extent of inventories built up last year, prompted by a series of plant openings, and by concerns of the ebola outbreak interrupting supplies.

“Large volumes” of cocoa were bought last year “when new processing facilities were opening, and now the initial start-up is over, that additional demand has subsided,” Ms Ganes-Chase said.

“Fears of ebola affecting the transport of cocoa or even the harvesting also led to large purchases last year as a preventive measure and this has created a bulge in coverage that now needs to be worked off.”

She added: “I would suspect there will be at least two more quarters of weak usage,” although history suggested that the downturn would not last for an extended period.

“While [I am] pessimistic on usage, grinds rarely falls for two consecutive seasons,” she said.

Contrasting views

Some other cocoa players are more upbeat on demand prospects.

Major cocoa processer Olam International has forecast grinding to recover.

Sunny Verghese, the Olam International chief executive, said last month that processors, including Olam, were building capacity in West Africa, and demand was set to recover.

He forecast a world 2015 cocoa production deficit of 120,000 tonnes, with output driven down by adverse growing conditions in West Africa, pushing stocks-to-use ratios into “fairly precarious levels”.

The International Cocoa Organization and Commodities Risk Analysis have also forecast cocoa deficits for 2014-15, while JSG Commodities has forecast a surplus of up to 50,000 tonnes.