Asian consumers are finally starting to balk at higher chocolate prices, sending cocoa futures to the longest rout in more than two years.
Processing of the beans in Asia fell 17 per cent in the fourth quarter from a year earlier, a sign of waning demand for the chocolate ingredient, the Singapore-based Cocoa Association of Asia said Friday. Grinding also declined in Europe, North America and Brazil, separate industry reports showed this month.
Slowing global economies are crimping demand as consumers look for ways to cut disposable spending after chocolate costs increased. Cocoa futures touched a three-year high in September amid concern that the deadly Ebola disease would disrupt shipments from West Africa, which produces 70 per cent of global supply. Prices have since fallen about 19 per cent as exports continued to flow from Ivory Coast and Ghana, the top growers.
“The market is reacting to the grinding figures,” Bill Pearce, a vice president for McKeany-Flavell Co. in Oakland, California, said in telephone interview. “The demand for chocolate is down because prices are quite high. If you look at the world economy, the US is still doing pretty good, but we have seen struggles in Europe and Asia.”
Cocoa for March delivery dropped 1.6 percent to $2,755 a metric ton at 11:37 a.m. on ICE Futures US in New York, after reaching $2,754, the lowest for a most-active contract since 23 January, 2014. The price is headed for the sixth straight decline, the longest slide since December 2012.
Futures surged 38 per cent in the previous three years as Asian consumers led global demand growth, eroding inventories. The gains prompted chocolate makers including Hershey Co. to boost prices in 2014 to cover ingredient costs.
“Falling cocoa grindings in Europe, North America and Asia suggest that the world has lost some of its sweet tooth,” Hamish Smith, a commodities economist at Capital Economics in London, said in a report Friday. Smith said prices will fall to $2,650 by the end of the year, lowering his outlook from a previous estimate of $2,750.
Cocoa butter, a byproduct of the beans used to make chocolate bars, has surged 38 per cent since the end of 2010. The higher prices may prompt some confection makers to use more substitutes, including alternative fats, said Pearce of McKeany- Flavell.
“It will be quite some time before we see prices at reasonable levels to stimulate consumption again,” Pearce said.
Bloomberg News edited by ESM
