Cocoa in strong demand performance in April

BY ONOME AMUGE

Cocoa futures moved into bullish territory in the last trading week of April as futures prices rebounded from the prolonged plunge in London and New York, supported by strong demand for cocoa-derived confectioneries and concerns that the below-average rainfall recorded in West Africa could be detrimental to the size and quality of the ongoing mid-crop and possibly the main crop of the 2022/23 cocoa season.

In reaction to this, London prices gained about $21 to settle at $2,200 per tonne, while prices in New York rose over $200 to sell at $2,650 per tonne.

Prior to this, the global cocoa market was generally bearish for most of April as prices of the nearby cocoa futures contract tumbled to a 4-month low at $2,179 per tonne in London and a 3-month low at $2,430 per tonne in New York, impacted by the four percent surge of the US dollar during the month under review.

Confectionery firms cash-in on cocoa demand surge

The International Cocoa Organisation (ICCO), in its April report, explained that increase in prices was more pronounced in the U.S as financial reports for the first quarter of 2022 indicated substantial increases in the sales revenues of US-based candy and chocolate confectionery products manufacturers such as Mondelez International and Hershey, indicating an improving demand for cocoa on that side of the Atlantic.

Although the global economy is facing significant inflationary pressures, worsened by the ongoing war in Ukraine, the first half of the 2021/22 cocoa season has so far witnessed a rebound in cocoa demand, with positive sales by major chocolate production firms reflecting chocolate’s irresistible attraction for consumers who are financially hard-pressed.

According to the ICCO, factors that have contributed to the increase in cocoa demand include the resumption of the air travel sector which is a major gateway for chocolate sales as well as resumption of seasonal festivities across the globe.

Positive quarterly earnings reports from major confectionery manufacturers for the period January–March 2022, revealed that confectionery, which includes chocolate sales, have risen and are heading or at par with that of pre-covid-19 period.

Nestlé, in its sales report, noted that sales in confectionery grew at a double-digit rate, with strong growth for KitKat and gifting products.

On its part, Mondelez, revealed that its chocolate and biscuit businesses continued to generate attractive revenue growth, strong profitability and robust cash flow.

Hershey reported that demand for confectionery products remained strong with retail sales growth of 8.1 percent.

Challenges await cocoa demand growth

Despite the demand uptick for cocoa in an increasingly volatile market, analysts familiar with the sector have expressed concerns that some factors may derail the positive trend.

They averred that despite Europe’s top position in cocoa processing, the continent relies heavily on Russia’s energy.

“Though efforts are being made to wean Europe from this dependency. Current high energy prices are prone to affect the operational cost of manufacturers, who are likely to turn the cost to customers,” ICCO noted.

There are also indications that investments in cocoa processing are likely to be affected as governments revert to increasing interest rates as a means to reduce the pace of rising prices, leaving consumers with no better option than shrink their spendings on confectioneries to focus on important expenses such as mortgages.

Shortfall in Ghana, Côte D’ivoire distorts global output

Information on crop sizes in main cocoa origin countries in West Africa suggests that the 2021/22 cocoa season is heading towards a global deficit of approximately 181,000 tonnes mainly due to a shortfall in overall production.

In Ghana, it is anticipated that the 2021/22 production will be nearly one-third less than the 2020/21 harvest, with the outbreak of swollen shoot disease and less conducive meteorological conditions, attributed as major factors for the production decline.

Less supportive meteorological conditions were also cited as a cause of the expected lower production in Côte d’Ivoire as the 2021/22 cocoa production is expected to be lower than the 2020/21 crop.

As at the first week of May 2022, cumulative arrivals of cocoa beans in the country were seen at 1.807 million tonnes, down by 3.2 percent compared to the volumes recorded in the same period of the previous cocoa year.