Cocoa News - March 17th 2009
· The Ivory Coast government will pay about 5,000 rebels and militia group members in Ivory Coast a demobilization (discharge of military service) allowance to join the army as part of a 2007 peace accord
· Ghana: Cocoa Processing Company (CPC) Limited expects to significantly increase its revenue and widen its target markets this year - The expansion has raised the capacity from 25,000 MT to 64,500 MT.
· NY Cocoa Market is nearly inverted
· Ghana’s cocoa board will seek as much as $1.2 billion in loans from international banks this year to finance its purchase of the beans from growers next season
· In the financial year 2008, Lindt & Sprüngli achieved above average organic growth of 5.8% in local currencies
· Irish Chocolatier Lily O'Brien's will open the first Lily O'Brien's Chocolate Cafe in Manhattan
· The nearby market works out well for those buying on the ratio. – Be aware of higher ratios for the 2nd half of this year
· The market continues to worry demand as the economy slows down
· Tenders against London Futures (expired yesterday) totaled of 307 lots left open, meaning 3,070MT of beans are set to change hands – 2060 MT of those are just Ivory Coast
COCOA
Delayed Futures -13:50 - Tuesday, 17 March
Contract Last Change Open
Mar '09 (CCH9) 2420 +42 0 2420
May '09 (CCK9) 2381 -47 2419
Jul '09 (CCN9) 2382 -48 2402
Sep '09 (CCU9) 2388 -40 2390
Dec '09 (CCZ9) 2380 -41 2402
Mar '10 (CCH0) 2388s -26 0
May '10 (CCK0) 2392s -25 0
Jul '10 (CCN0) 2404s -25 0
Sep '10 (CCU0) 2405s -28 0
Dec '10 (CCZ0) 2424s -22 0
Burke Cocoa Report:
Patrick Burke
Ivory Coast:
Traders and buyers have been watching the weather in the IC in hopes that it would improve the main crop tail and help the mid-crop. The good news is the weather has improved over the past two months. But even with favorable weather, this year’s main crop will not equal the main crop last year (07-08 IC main was 1.066 million mt vs. a projected 08-09 main crop of approximately 950,000 mt). The improved weather, and decreased demand, should reduce many of the large projected deficits. The sustainability of the Ivory Coast farmer related to husbandry and fertilizing the crop is coming into question. It seems that a free market, years of low farm-gate prices (due to high government taxes), lack of government support, widespread corruption in the cocoa agencies, and the appeal of easier crops could seriously reduce the IC output as cocoa trees mature in the next few years. Ghana has a much better marketing system/government support that encourages planting new trees and investing in the future of cocoa trees. Ghana’s government does much more than the Ivory Coast government to protect, train, and support cocoa farmers. It is extremely important that the Ivory Coast develop a system to keep cocoa farmers interested in growing cocoa verses alternative crops as the trees become mature and need to be replaced.
Product ratios:
The fact that cocoa butter ratios have plummeted during the last few weeks to their lowest levels in over three years should make manufacturers very nervous about the prospective reduction in consumption. The reduction of consumption was felt as early as September when companies were moving their cocoa product book out into 2009 and reducing the amount of product they needed based on smaller 2009 budgets. For the first time in my life consumption seems to be driving the direction of the market due to larger inventories, lower differentials on cocoa beans and lower cocoa butter ratios. The first quarter grinds will be out in April and most buyers and traders are expecting a reduction world wide of 5-10 percent. A number of branded chocolate companies and large processors have significantly reduced manufacturing and their inventories until they have firm sales projections for the second half of 2009. A sharp drop in butter demand is sending outright powder prices much higher quickly. As I stated in my April 2008 report: “You should cover all of your powder needs for 2009-2010 before butter ratios decrease and powder prices rise.” Powder has increased by over 17% in the past year. If pure chocolate consumption continues to reduce in the world wide recession look for higher levels on cocoa powder because cocoa powder consumption is not falling as fast as cocoa butter demand.
Pricing:
In January- February the futures rallied over 2900 dollars on fear of a production short fall that would be much larger than the consumption reduction. Between deficits and large currency swings the cocoa market went wildly to the upside. While everyone was concerned about production, a world-wide recession or depression was underway with President Obama forcing through legislation that could prolong the recession/depression. With the fall of the stock market individuals wealth is now shattered and their disposable income is diminishing quickly. It will take many years, possibly decades, for their wealth to return (this includes 5-35% losses in home equity coupled with 15-50% reductions in their retirement funds). We are in unprecedented times and it looks like that consumption could be reduced by as much as 7-10% in 2009 and possibly another decrease in 2010. In a normal year a short fall in production would have forced cocoa prices above 3500 dollars but with improving crops, credit issues, and very low sell-through at retail - the cocoa future prices may drop to 1900 in the next few months. With the world wide economy in shambles the question is how and what will consumers buy? Will there be different buying and eating behaviors over the next several years? Do they buy more product for baking and not finished product? Our industry growth over the past several years was helped by emerging markets, consumers switching from milk to dark chocolate, and the publicity regarding the health benefits of higher cocoa content products. Manufacturers are nervous about high inventories and are reacting by reducing production hours and producing only for sales orders vs. historical demand. Every bean, butter, and liquor vendor reports that their customers have been delaying their contracts for ingredients.
Sorry to be so pessimistic regarding the demand picture but if we see a 7-10% decrease in demand cocoa prices could plummet as low as 1700-1800. The other big question is how low will chocolate retail prices have to fall before demand starts to grow again? Could the deficit turn into a surpluss? And what will happen to margins if manufacturers are forced to lower their prices before they use up their current higher priced inventories of beans / butter (which will last longer than expected because of decreasing demand)? It’s a vicious circle that may get much worse before it gets better.
Recommendations:
Chocolate: wait for outright prices to fall below 2000 dollars
Cocoa Butter: book ratio’s below 2.50 for 2010
Cocoa beans: start to add cover below 2000 dollars
Cocoa powder: extend cover through 2010 at current prices.
Cocoa News - March 17th 2009
· The Ivory Coast government will pay about 5,000 rebels and militia group members in Ivory Coast a demobilization (discharge of military service) allowance to join the army as part of a 2007 peace accord
· Ghana: Cocoa Processing Company (CPC) Limited expects to significantly increase its revenue and widen its target markets this year - The expansion has raised the capacity from 25,000 MT to 64,500 MT.
· NY Cocoa Market is nearly inverted
· Ghana’s cocoa board will seek as much as $1.2 billion in loans from international banks this year to finance its purchase of the beans from growers next season
· In the financial year 2008, Lindt & Sprüngli achieved above average organic growth of 5.8% in local currencies
· Irish Chocolatier Lily O'Brien's will open the first Lily O'Brien's Chocolate Cafe in Manhattan
· The nearby market works out well for those buying on the ratio. – Be aware of higher ratios for the 2nd half of this year
· The market continues to worry demand as the economy slows down
· Tenders against London Futures (expired yesterday) totaled of 307 lots left open, meaning 3,070MT of beans are set to change hands – 2060 MT of those are just Ivory Coast
COCOA
Delayed Futures -13:50 - Tuesday, 17 March
Contract Last Change Open
Mar '09 (CCH9) 2420 +42 0 2420
May '09 (CCK9) 2381 -47 2419
Jul '09 (CCN9) 2382 -48 2402
Sep '09 (CCU9) 2388 -40 2390
Dec '09 (CCZ9) 2380 -41 2402
Mar '10 (CCH0) 2388s -26 0
May '10 (CCK0) 2392s -25 0
Jul '10 (CCN0) 2404s -25 0
Sep '10 (CCU0) 2405s -28 0
Dec '10 (CCZ0) 2424s -22 0
Burke Cocoa Report:
Patrick Burke
Ivory Coast:
Traders and buyers have been watching the weather in the IC in hopes that it would improve the main crop tail and help the mid-crop. The good news is the weather has improved over the past two months. But even with favorable weather, this year’s main crop will not equal the main crop last year (07-08 IC main was 1.066 million mt vs. a projected 08-09 main crop of approximately 950,000 mt). The improved weather, and decreased demand, should reduce many of the large projected deficits. The sustainability of the Ivory Coast farmer related to husbandry and fertilizing the crop is coming into question. It seems that a free market, years of low farm-gate prices (due to high government taxes), lack of government support, widespread corruption in the cocoa agencies, and the appeal of easier crops could seriously reduce the IC output as cocoa trees mature in the next few years. Ghana has a much better marketing system/government support that encourages planting new trees and investing in the future of cocoa trees. Ghana’s government does much more than the Ivory Coast government to protect, train, and support cocoa farmers. It is extremely important that the Ivory Coast develop a system to keep cocoa farmers interested in growing cocoa verses alternative crops as the trees become mature and need to be replaced.
Product ratios:
The fact that cocoa butter ratios have plummeted during the last few weeks to their lowest levels in over three years should make manufacturers very nervous about the prospective reduction in consumption. The reduction of consumption was felt as early as September when companies were moving their cocoa product book out into 2009 and reducing the amount of product they needed based on smaller 2009 budgets. For the first time in my life consumption seems to be driving the direction of the market due to larger inventories, lower differentials on cocoa beans and lower cocoa butter ratios. The first quarter grinds will be out in April and most buyers and traders are expecting a reduction world wide of 5-10 percent. A number of branded chocolate companies and large processors have significantly reduced manufacturing and their inventories until they have firm sales projections for the second half of 2009. A sharp drop in butter demand is sending outright powder prices much higher quickly. As I stated in my April 2008 report: “You should cover all of your powder needs for 2009-2010 before butter ratios decrease and powder prices rise.” Powder has increased by over 17% in the past year. If pure chocolate consumption continues to reduce in the world wide recession look for higher levels on cocoa powder because cocoa powder consumption is not falling as fast as cocoa butter demand.
Pricing:
In January- February the futures rallied over 2900 dollars on fear of a production short fall that would be much larger than the consumption reduction. Between deficits and large currency swings the cocoa market went wildly to the upside. While everyone was concerned about production, a world-wide recession or depression was underway with President Obama forcing through legislation that could prolong the recession/depression. With the fall of the stock market individuals wealth is now shattered and their disposable income is diminishing quickly. It will take many years, possibly decades, for their wealth to return (this includes 5-35% losses in home equity coupled with 15-50% reductions in their retirement funds). We are in unprecedented times and it looks like that consumption could be reduced by as much as 7-10% in 2009 and possibly another decrease in 2010. In a normal year a short fall in production would have forced cocoa prices above 3500 dollars but with improving crops, credit issues, and very low sell-through at retail - the cocoa future prices may drop to 1900 in the next few months. With the world wide economy in shambles the question is how and what will consumers buy? Will there be different buying and eating behaviors over the next several years? Do they buy more product for baking and not finished product? Our industry growth over the past several years was helped by emerging markets, consumers switching from milk to dark chocolate, and the publicity regarding the health benefits of higher cocoa content products. Manufacturers are nervous about high inventories and are reacting by reducing production hours and producing only for sales orders vs. historical demand. Every bean, butter, and liquor vendor reports that their customers have been delaying their contracts for ingredients.
Sorry to be so pessimistic regarding the demand picture but if we see a 7-10% decrease in demand cocoa prices could plummet as low as 1700-1800. The other big question is how low will chocolate retail prices have to fall before demand starts to grow again? Could the deficit turn into a surpluss? And what will happen to margins if manufacturers are forced to lower their prices before they use up their current higher priced inventories of beans / butter (which will last longer than expected because of decreasing demand)? It’s a vicious circle that may get much worse before it gets better.
Recommendations:
Chocolate: wait for outright prices to fall below 2000 dollars
Cocoa Butter: book ratio’s below 2.50 for 2010
Cocoa beans: start to add cover below 2000 dollars
Cocoa powder: extend cover through 2010 at current prices.
Cocoa News - March 17th 2009
0 comments:
Post a Comment