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Are those chocolate Santas the real deal? Volatile cocoa prices, which scaled twin peaks in the past two years, have sent chocolate makers scurrying to find more economic substitutes. Food behemoth Nestlé has relabelled its not-so-chocolatey Toffee Crisps and Blue Ribands; McVitie’s’ Club and Penguin biscuits have been downgraded from chocolate to “chocolate flavoured” in recognition of their reduced cocoa content.
The irony is that cocoa prices, hovering at about $6,000 to $7,000, have not been this low in two years. High prices did what high prices do: dent demand. Chocolatiers got clever with shea butter and oils, and consumers dropped fewer bars in their shopping baskets. Rallies this year and last made chocolate three times pricier within four months, reckons cocoa processor Barry Callebaut.
Unpalatable as this is, for consumers and investors alike, industry dynamics explain the lag in response. This is a crop that takes two to four years to bear fruit; for their part, manufacturers usually lock in prices by buying futures contracts.
What matters, then, is what next year brings. Disregard what may well be a rocky start: Bloomberg is reintroducing cocoa to its commodity index on January 1 with a 1.7 per cent weighting, which will unleash further index and investment rebalancing.
Meteoric rises like those which drove the price up to $12,000 a metric tonne are about as likely as finding Willy Wonka’s golden ticket in a bar of Whipple-Scrumptious Fudgemallow Delight. Speculation has abated in the markets. Farmers in the Ivory Coast and Ghana, home to half the world’s cocoa production, are receiving improved rates for their produce under government agreements which set farmgate prices. At least in theory, some of that is reinvested in the farm via fertilisers and new seedlings. Growers in South America and elsewhere are turning to cocoa, and doing so efficiently too.
None of this is enough to take prices back to the historical trend of, round numbers, between $2,000 and $3,000 per tonne. But it does suggest supply running ahead of shrinkflated demand when crops now being harvested are all in. Marex brokers reckon on a surplus of up to 300,000 tonnes this year, which runs to the end of September, or 5 per cent of global production.
Prices, then, are likely to melt, albeit perhaps not as much as chocoholics may wish. Barry Callebaut is reckoning on a price of £5,000 or $6,700 per tonne next year. That may reflect Swiss caution. Or it may just show that forecasting cocoa prices is about as futile as resisting that tin of Quality Streets at Christmas.
louise.lucas@ft.com
