KANSAS CITY — Cocoa prices have risen to multi-year highs and are expected to go still higher despite the global economic downturn and sharp declines in most other ingredient prices.
While not record high, the price of basic 10% to 12% natural cocoa powder, at 87@97c a lb last week, is the highest since June 2004. Prices have risen nearly 25% since early December and are 50% above year-ago values. Some in the trade expect prices for the basic grade may rise to $1.50 a lb or above by summer, more than 50% above current values and approaching highs set in late 2002 of $firstname.lastname@example.org.
Meanwhile, prices for most other ingredients have dropped dramatically, some from record highs, in the last year.
The Sosland Publishing "milk chocolate bar" ingredient index in mid-February was about even with a year ago as lower dairyprices offset higher cocoa and sugar prices. By comparison, the index for vanilla ice cream was down 18%, mayonnaise was down 63%, cheese pizza was down 15% and frozen apple pie was down 53%.
Strong cocoa powder prices are the result of several factors, including the weak economy that has helped drive other ingredient values down.
Cocoa powder is "almost" a byproduct of cocoa bean processing with cocoa butter the primary product. A tonne of cocoa beans on average yields about 40% butter, 40% powder and 20% waste. Typically a few large companies buy large volumes of butter while a large number of food processors, including many small companies, buy most of the powder, industry sources said. Processers usually sell butter first, then powder, they said.
Increased cocoa pressing capacity as new facilities came on line in the past several months resulted in larger cocoa butter supplies. About the same time late last year demand for higher quality chocolate, which uses more cocoa butter, began to fall along with the economy.
"It was a case of more supply chasing less demand," one trade source said. Some processors consequently reduced butter production, which also reduced the supply of cocoa powder.
But as demand fell for higher quality chocolate, demand increased for lower quality chocolate, which some see as a "comfort" food during poor economic times. Lower quality chocolate uses more "compounds," made from a combination of lower grade cocoa powder and vegetable oils, rather than from higher quality cocoa butter.
In addition, demand for cocoa for use in mixes, especially cakes and brownies for home baking, has held strong, indicating a broader trend of more meals eaten at home during poor economic conditions.
"This year anything that goes through the grocery channel is doing better if it’s not premium," one trade source said. Retail sales of lower-priced private label cocoa products, such as baking chips, have been strong compared with name brands, sources concurred.
Strong powder demand has prompted some processors to sell powder first, without a "home" for their cocoa butter, a practice one processor called "risky."
Trade sources expect additional cutbacks by bean processors in coming months "until the butter situation is righted," resulting in still tighter powder supplies and consequently higher powder prices. However, one source noted, powder demand for use in ice cream will increase as warmer weather approaches.
While demand remains the greatest unknown, trade sources agreed, most expect some decline across all grades of cocoa in the months ahead as chocolate consumption falls, providing at least some offset to tight supplies. Despite strong chocolate sales in the fourth quarter, some processors have seen declines since Christmas, although sales for Valentine’s Day were good at some retail outlets, especially discount stores, they said.
Global cocoa demand is expected to decline slightly in 2009, by 1% to 2% by some estimates, but use still is forecast to exceed production. It would be the third consecutive year production has been "deficit" to use. The forecast large deficit will shrink as the year goes on and as demand falls, one processing source forecast,
But the world will not run out of cocoa, trade sources stressed, because of large yearly carryover stocks. Specific grades or qualities of cocoa may be scarce by summer, some said.
Cocoa bean deliveries to ports in the Ivory Coast, which accounts for 40% of global production, were down 17% since the start of the season Oct. 1 through Feb. 22, according to press reports from the region. But the crop is not turning out to be as bad as first expected, one trader noted. Production in nearby Ghana, which produces about 20% of the world crop, is fairing somewhat better.
Domestically, first-quarter 2009 cocoa bean grind may fall around 10% from a year ago, one trader forecast. That data will not be available until April.
This article can also be found in the digital edition of Food Business News, March 3, 2009, starting on Page 1. Click