Cocoa processors tap stockpiles in Europe …as Ghana, Ivory Coast fail to produce quality beans

Poor quality cocoa beans in Ghana and Ivory Coast force grinders to tap stockpiles elsewhere

Poor quality cocoa beans in Ghana and Ivory Coast force grinders to tap stockpiles elsewhere

European cocoa processing soared to a five-year high in the second quarter as poor-quality beans in West Africa, the world’s largest producing region, forced grinders to tap stockpiles elsewhere, European Cocoa Association (ECA) said in a report on its website yesterday.

According to the Brussels-based association, bean processing jumped 4.9 per cent from a year earlier to 324,968 metric tonnes, the highest for that quarter since 2011.

The increase was bigger than the 3.2 per cent expected in a Bloomberg survey of 11 traders, brokers, analysts and fund managers published last week.

The ECA said cocoa processors are shifting grindings to Europe as the poor quality of crops in West Africa, where about 70 per cent of the world’s cocoa is grown, means they have not been able to boost activity locally.

Dry weather damaged the mid-crop, the smaller of two annual harvests in Ghana and Ivory Coast, the two world leading producers of cocoa, spurring factories to tap stockpiles in Europe at a time traders including Cargill Inc. and Olam International Limited forecast shortages.

“We were expecting some upside because of the situation in West Africa,” Carlos Mera, an analyst at Rabobank International in London, said Tuesday.

European processing came to 324,968 metric tonnes in the period, ECA data showed. In Germany, bean grinding rose two per cent to 90,510 tonnes, the Bonn-based Association of the German Confectionery Industry said on its website.

Today, cocoa butter, the most crucial ingredient in a chocolate bar, costs 21 per cent more to procure than a year ago.

“It’s been a tough time for the chocolate guys,” said Ken Lorenze, vice president at Connecticut-based brokerage JSG Commodities.

Cocoa processors take the beans, remove the shells, cook and grind up the “nib” on the inside to turn it into a thick paste called cocoa liquor. The paste is then pressed to separate the fat (cocoa butter) from residual solids (a cake that is used to make cocoa powder).

“You really can’t make chocolate without cocoa butter, and it’s getting more and more expensive,” Mr. Lorenze said.

Still, the bulk of the costs of making chocolate are in transportation and marketing costs.

According to Cocoa Barometer, a consortium of nonprofit groups focused on sustainability in the cocoa sector, purchasing cocoa beans from farms makes up about 6.6 per cent of the total costs of creating chocolate.

Grindings were expected to increase due to lower processing in West Africa and better margins, which gained from higher cocoa-butter prices relative to bean futures, Max Goettler, a trader at Cocoanect BV, said last week. Higher prices for earlier-dated futures also made it expensive to store cocoa through the summer, according to the Rotterdam-based trader.

Cocoa futures traded in London jumped 10 per cent this year partly as dry weather damaged beans in West Africa. Beans for July surged to a premium of 69 pounds ($90) a ton to the next futures contract on Monday, the highest since that spread started trading in 2014, ICE Futures Europe data showed. That market structure, known as backwardation, may signal tight supplies.

The dry weather earlier this year has led to smaller beans with less fat content during the mid-crop, Barry Maas, a customer risk manager at Cargill Cocoa & Chocolate Inc., said in a June report.

Cocoa that doesn’t meet export requirements might be held back for sale into the next season, meaning the perceived shortage may increase over the summer months, he said.

Higher grindings do not reflect rising demand. Global chocolate sales fell two per cent in the nine months through May, with the market contracting 1.2 per cent in Europe, the Middle East and Africa, 3.3 per cent in the Americas and 2.1 per cent in Asia, Barry Callebaut AG, the world’s top cocoa processor, said Thursday, citing figures from analytics group Nielsen.

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