Dairy seen firming while cocoa outlook weak

by Ron Sterk
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ORLANDO, FLA. – Analysts speaking at the International Sweetener Colloquium in Orlando this week painted a firmer though less-than-robust picture for dairy product prices and offered a mostly weak outlook for the cocoa market.

Mary Ledman, principal, Keough Ledman Associates, said there had been robust growth in milk production since July 2014, but that the rate of growth would not increase further in 2015.

“We have a lot of cows in the dairy herd right now,” Ms. Ledman said, noting that cows were expected to calve early this year, which could result in an early “flush” (peak milk production) that she said could be “a tsunami of milk.”   

Ms. Ledman said there was “a lot of upside” for dairy product prices in the second half of 2015, but she noted values were compared with low levels in previous periods. Strong production in other major dairy producing regions has made the United States a residual supplier to the world market, she said. 

Cocoa prices will remain subdued by weak demand and ample supplies in 2015, said Jeffrey Rasinski, director of commodities and corporate procurement, Blommer Chocolate Company. He noted unit sales of chocolate candy, especially chocolate bars, declined in 2014 after price increases by Hershey’s, Nestle, Mars and Mondelēz International.

After a 2% decline from a year earlier in North American cocoa bean grind in the fourth quarter of 2014, Mr. Rasinski said, “Our expectation is that 2015 will be a challenging year to post solid percentage gains when comparing quarters.” He suggested many analysts had overestimated grind for 2015 based on chocolate’s solid performance in 2014.

Cocoa bean grind generally is seen as an indication of cocoa demand.

“Europe appears to be in a funk or perhaps a portion of the historic grind is transitioning to origin processing,” Mr. Rasinski said, noting fourth-quarter cocoa bean grind in Europe, down 7.5%, was even weaker than in North America.

And Asian fourth-quarter grind “hit the wall,” Mr. Rasinski said, tumbling 17% in the fourth quarter. He said the collapse in global cocoa processing margins was idling capacity, and “talk of surplus cake and powder in Asia is slowing processing.”

Mr. Rasinski forecast 2015 cocoa bean grind to decline 1.1% from 2014 in the Americas, drop 1.3% in Western Europe, hold nearly flat in eastern Europe and Asia and increase 5% in Africa, which would support ideas that grind was continuing to shift to origin countries.

Mr. Rasinski forecast nearly balanced global cocoa bean production and use in 2015 after surpluses in three of the past four years back to 2011, which followed sizable deficits from 2007 through 2010, with the global ending stocks-to-use ratio to remain about flat at just under 40% in 2015. He forecast 2015 cocoa bean production at 1,625,000 tonnes in Ivory Coast, with arrivals at ports in that country running ahead of last year, at 845,000 tonnes in Ghana, at 370,000 tonnes in Indonesia, at 235,000 tonnes in Equador, at 225,000 tonnes in Brazil and at 845,000 tonnes in the rest of the world.

Mr. Rasinski said speculative buying in cocoa bean futures had driven prices higher last year, but that the fund money had exited the market rapidly to the point futures had become “a little oversold.” He said higher futures prices the past couple of weeks resembled a traditional “dead cat bounce,” suggesting it lacked support to sustain a prolonged uptrend.
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