Cocoa Slips to One-Week Low On Weak Demand Signs

(Wall Street Journal) – Cocoa prices slid to the lowest level in more than a week on Friday after trade-group data showed a surprising decline in bean processing in two of the world’s biggest chocolate-consuming regions.

The March cocoa futures contract fell 1.2% to $2,942 a ton. It was the lowest closing price for the ICE Futures U.S. exchange’s most actively traded contract since Jan. 7.

Data published Thursday showed the processing of cocoa beans in Europe fell 7.4% on the year in the fourth quarter to 323,061 metric tons. The figure published by the European Cocoa Association was well below market expectations of a decline of between 2% and 5%.

In North America, cocoa grindings slipped 2% in the October-December quarter. North American factories processed 122,886 metric tons of cocoa beans, according to data from the National Confectioners’ Association, compared with 125,332 tons in the fourth quarter of 2013. The North American data were released after the cocoa-futures market had settled.

The grindings data measure the tonnage of cocoa beans factories process and are considered a barometer of cocoa demand. Western Europe and North America are the world’s two biggest chocolate consumers, according to market-research firm Euromonitor International.

“We interpret the grind data as a sign of a weaker demand environment,” Cargill Inc., one of the world’s biggest cocoa processors, told The Wall Street Journal on Thursday. “We expect this environment to persist in the coming quarter.”

Analysts are saying the global economy is facing headwinds this year, a factor that would weigh on chocolate consumption. On Tuesday, the World Bank cut its forecast for global growth to 3% for this year, up from 2.6% in 2014 but still slower than its earlier 2015 forecast of 3.4%.

The cocoa market expects to get a clearer demand picture on Jan. 21, when the results of fourth-quarter cocoa processing in Asia are released. Demand in Asia is growing at a faster rate than Europe or North America. Chocolate consumption in the Asia-Pacific region rose 5.5% last year, compared with global chocolate-consumption growth of 1.5%, Euromonitor says.

Cargill recently made a big bet on chocolate demand in Asia, investing $100 million to build a cocoa-processing facility in Indonesia, the world’s third-largest grower of cocoa beans.

Others have too. In December, Singapore-based trader Olam International Ltd. agreed to buy Archer Daniels Midland Co. ’s global cocoa operations for $1.3 billion, adding eight factories with 600,000 metric tons of annual production capacity.

In other markets, arabica coffee for March delivery fell 3.2% to end at $1.71 a pound, the lowest settlement for the most actively traded contract since Jan. 5. Forecast rains for Brazil’s coffee-growing areas eased concerns over next season’s crop in the world’s top grower of arabica coffee, a variety prized for its mild flavor and often used in gourmet blends. Prices fell 5% for the week, the biggest weekly percentage loss in nearly three months.

Cotton futures eased 0.4% to end at 59.23 cents a pound after the U.S. Department of Agriculture raised its forecast earlier this week for U.S. and world supplies of the fiber.

Global supplies of cotton likely will swell to a record 108.64 million bales at the end of the season on July 31, the result of slightly higher supplies and weaker-than-expected demand, the USDA said in its monthly report on Monday.

Lower demand is largely stemming from a “sluggish” response to falling domestic cotton prices from mills in China, which is also the world’s biggest cotton consumer. That overall response could diminish that country’s need to import cotton.

The USDA also raised its forecast for U.S. cotton production for the current season to 16.1 million bales, from 15.9 million bales previously.

Orange-juice concentrate for March delivery fell 0.1% to $1.4650 a pound, while March raw sugar lost 0.1% to end at 15.33 cents a pound.