Cocoa Prices Surge on Ebola Fears
By Alexandra Wexler and Sara Jerving, 19 September 2014
Concerns Grow Over Possible Disruption of Supply Chain in West Africa
“Ebola or no Ebola, there is pressure on cocoa prices because of the high
demand,” said Akin Olusuyi, managing director of Cocoa Products (Ile-Oluji)
Limited, a processor in Nigeria’s Ondo state. Nigeria, the fourth-largest cocoa
producer, has had 19 confirmed Ebola cases in the current outbreak, but only five
in the past 21 days, according to the World Health Organization.
The number of new Ebola cases is still rising. The WHO counted 5,335
confirmed or suspected cases with 2,622 dead as of Sept. 14 in Liberia, Guinea
and Sierra Leone, the three hardest-hit countries. On Tuesday, President Barack
Obama said the epidemic is “spiraling out of control” and ordered 3,000 U.S.
troops to the region.
Traders were calling the increase an ‘Ebola premium,’ as cocoa futures jumped
6.3% during the week. Above, bags of cocoa beans are sorted Reuters
The deadly Ebola virus spreading through West Africa is sparking fears in the
market that supplies of cocoa, one of the region’s top exports, could be disrupted.
Prices for the key chocolate ingredient have surged 6.3% this week, settling just
shy of the highest level in more than three years on mounting concerns that the
outbreak will reach the Ivory Coast or Ghana, which produce about 60% of the
world’s cocoa. No cases have been reported in either country. But Ivory Coast
shares a poorly policed border with Liberia and Guinea, two of the countries
hardest hit by Ebola.
Even a small number of Ebola cases in Ivory Coast could have a sweeping impact
in the cocoa market, analysts say. Cocoa is grown on tiny plots, with growers
selling their beans to middlemen who ride from farm to farm on motorbikes
gathering the crop to transport to the coast for export. The travel restrictions and
quarantines used to contain the disease could quickly isolate millions of farmers,
choking off supplies to the world’s chocolate makers.
“The fear people have is that once Ebola is verified in Ivory Coast ... it will be
pandemonium,” said Hector Galvan, senior market strategist at RJO Futures in
Chicago. “The worst case scenario—you lose virtually all cocoa exports out of
Ivory Coast [or] Ghana for an unknown period of time.”
The last time exports were halted
out of Ivory Coast, during a period
of postelection civil war in late
2010 and early 2011, cocoa futures
spiked to 32-year highs.
Any interruption to cocoa exports
would be devastating for Ivory
Coast, which is heavily reliant
on the income generated from
agriculture. A disruption would also
quickly radiate through the global
market, where record demand for
chocolate is squeezing supply.
Cocoa futures are up 20% this year
and hit a three-year high last month.
On Friday, cocoa for December
delivery on ICE Futures U.S. rose
to a near five-week high of $3,259 a
ton, up 2.1% on the day. Traders and
investors are calling the increase an
“Ebola premium.” A halt to exports
from the region could send prices to
$4,000 a ton, Mr. Galvan said.
Many analysts are bracing for the outbreak to spread more widely beyond those
three countries.
“Given the extremely porous nature of the border of Liberia and [Ivory Coast] ...
it appears to be a minor miracle that there have been no reported cases of Ebola”
there, said Benjamin Spatz, a West Africa policy expert and former adviser to
the Liberian government.
There are many investors and analysts who see a widespread Ebola outbreak in
Ivory Coast as a remote threat.
“Certainly the market discussion of Ebola and cocoa has risen recently, (but) to
date, trade flows of cocoa have not been affected by this outbreak,” said Gillian
Rutherford, a senior vice president at Pacific Investment Management Co. who
oversees $25 billion across several commodity portfolios. Pimco is currently
neutral on cocoa, Ms. Rutherford said.
Large chocolate companies, including Nestlé SA NESN.VX +0.07% and Mars
Inc., said they are monitoring the situation. Barry Callebaut AG BARN.EB
-0.46% , the world’s largest cocoa processor, is distributing information about
the virus to workers in West Africa, a spokesman said. Agriterra Ltd. AGTA.
LN -0.50% , a London-based company that has corn, beef and cocoa operations
across Africa, curtailed its cocoa operations in Sierra Leone on Wednesday.
Ivory Coast’s cocoa harvest typically starts in October.
Kevin Kerr, president of commodities trading and consulting firm Kerr Trading
International, placed bets on rising cocoa prices in his personal account about
a month ago.
“If the concerns over Ebola spread to cases in the Ivory Coast, we could see
prices shoot up another 20% or more,” said Mr. Kerr, who manages about $250
million.
—Obafemi Oredein and Neena Rai contributed to this article.
Emerging Markets’ Chocolate Lovers
CocoaCocoa
PricesPrices
Climb but Not Enough
Boost
to
Boost Production, Industry Says
Appetite for Chocolate in Developing Countries Has Sparked Rally in Cocoa, Near
By Alexandra Wexler and Biman Mukherji, 8 July 2014
3:52 pm Oct 16, 2013 By Leslie Josephs
Three-Year Highs
More than a decade ago, Anupama Amarnath learned how to make chocolate
candy for her husband, who had a hard time finding enough of the rare treat
in Bangalore to satisfy his cravings. But demand for her chocolate, which is
tempered and molded into various shapes, grew far beyond her household.
Fifty-year-old Ms. Amarnath now operates a chain of 11 retail outlets under
the Chocolate Junction brand in and around the Indian city and owns a
10,000-square-foot chocolate factory.
Years of rapid growth in chocolate consumption have given India and other
developing markets unprecedented sway in the global market for cocoa.
These countries’ share of global chocolate sales is pegged at 45% this year,
according to data from market-research firm Euromonitor International. That
is up from 33% a decade ago. The voracious appetite in developing countries
ranging from India to Saudi Arabia and China has sparked a rally in the price
of cocoa, the key ingredient in chocolate. In recent days, cocoa futures, also
supported by growing consumption in developed markets, have risen to nearly
three-year highs. Chocolate sales by volume in Switzerland, the world’s biggest
per-capita chocolate consumer, are forecast to rise 1.5% this year, according to
Euromonitor.
Chocoholics, brace yourselves.
Cocoa prices hit a two-year high of $2,770 a ton this week,
and some of the world’s biggest cocoa traders think they’re set
to rise even more.
Singapore-based trader Olam International Ltd.O32.SG
+0.97% says the world’s supply of cocoa beans will likely fall
short of rising demand by 185,000 metric tons in the season
that started this month. That’s more than double the deficit
the International Cocoa Organization has forecast.
The shortfall is driven more by demand than by supply problems, Olam’s cocoa head Gerry Manley told The Wall Street
Journal. The trend could lift prices of the key chocolate ingreSales
in India
are expected
to soar
year,
dient
to $3,000
a metric
ton14%
thisthis
year,
heaccording
said. to Euromonitor.
Meanwhile, China is now the world’s eighth-largest chocolate consumer, up
from 10th in 2010.
“But (that price) is still probably not enough” to encourage cocoa growers to increase production, Mr. Manley said.
Cocoa’s 43% price surge in the past year through Tuesday has made the beans
Global chocolate sales by volume are expected to hit a record 7.5 million
the second-best-performing
commodity
thelow
S&PtoGSCI
Commodity
Index,
The
sentiment that prices
are stillintoo
boost
output was
echoed
throughout
theaccelerating
World Cocoa
conference
in Santo
metric
tons in 2014,
at the Foundation
fastest pace in three
years, according
to
trailing only nickel, which is up 47%.
Domingo this week. Cocoa growers in some parts of the world have been
switching to more profitable crops such as rubber and palm
Euromonitor.
oil
or even dropping
farming
to seek
jobs the
in urban
“Emerging-market
demand
is the altogether
principle reason
behind
steady areas.
and Cocoa processors estimate that prices would need to rise by about
Multinational candy companies have taken note, expanding product lines and
$800
a ton
entice
farmers
in said
theirSterling
plantations.
consistent
risetothat
we’ve
seen in to
theinvest
cocoa more
market,”
Smith, a
acquiring local businesses. In December, chocolate giant Hershey Co. HSY
futures specialist at Citigroup C +3.02% in Chicago. “Is that demand enough to
-1.51% agreed to buy Shanghai Golden Monkey Food Joint Stock Co., a
propel
it
higher?
Oh,
yes.”
“The crops that we compete with on the ground, we can’t compare with
at current price levels,” said Kip Walk, head of sustainability
Chinese candy maker, to get a stronger foothold in the country. Hershey has said
at Blommer Chocolate Co., a top U.S. cocoa processor that sells its products
to large
food companies.
it expects China
to become
its No. 2 market, behind the U.S., by 2017. Not all
Thanks to steadily rising incomes in these countries, chocolate has gone from
market experts are bullish on emerging-market demand, citing a slowdown that
being a rare luxury to an affordable treat and now is becoming an everyday
Massimiliano
Wax, a vice president at Santo Domingo-based cocoa has
exporter
Cacao,
says cocoa
need
to reach
$3,500 to
hit manyRizek
developing
economies’
stock,prices
bond and
currency
markets.
habit. Helping to drive the shift is an explosion of new products, as well as
keep
farmerstogrowing
the beans.
improvements
transportation
and refrigeration infrastructure that has eased
“Emerging-market demand was supposed to be the bright spot, and I just don’t
the distribution of candy bars and bonbons.
see thisair
happening
if economic
indicators
anya real
to chocolate
Cocoa is currently underpriced, said Mr. Wax. “Farmers want electricity,
conditioning,
a moped
orhave
even
car correlation
– you need
money
use,” said Judy Ganes, president of J Ganes Consulting LLC, a firm that
“Wedocan
put” your photo on a chocolate, emboss a company’s logo or create
to
that.
specializes in the food and agriculture industries. She specifically pointed to
chocolate bouquets, arranged like a flower,” Ms. Amarnath said. “There is big
indicators of sluggish growth in big markets such as Brazil and India.
demand,
so
long
as
the
quality
is
right.”
Olam’s Mr. Manley estimates prices will have to rise to $3,800 a ton for farmers to switch from competing crops into cocoa.
Still, food-company executives say there is plenty of room for demand to
Many investors
and analysts
say they including
realized justOlam
how big
influence are trying to shore up supplies through programs including direct
Cocoa
and chocolate
companies,
andanBlommer,
grow, given the large populations and relatively low levels of current market
emerging-market demand has become in the $6.6 billion cocoa market after
penetration
in poorer
nations.
investment
in
farms
and
third-party
certifications
that
allow
the
farmers
to sell
the beans
at higher prices.
prices continued their ascent despite reports last month that No. 1 cocoa producer
Ivory Coast would deliver a record crop. Cocoa for delivery in July, the front-
to nine out of 10 Indians still do not eat chocolates, it provides
But
these
programs
carry up
a cost,
and
increasing
doesn’t“When
comeeight
cheap.
month
contract,
ended Tuesday
0.6% at
$3,134
a ton. Theproductivity
contract hit $3,153
a ton on June 27, the highest intraday level since July 22, 2011.
opportunity for growth,” said Mayur Bhargava, general manager of chocolate
at Nestlé
India. 500790.BY
-0.69%
“In order to do all of this great stuff, the price of chocolate is going toandgoconfectionery
up,” said Ruth
Moloney,
head of development
and sustainaRising for
cocoa
alreadyatare
prompting trade
candy makers
increase prices
bility
thefutures
Americas
U.K.-based
house to
Armajaro
Ltd., a major
cocoa
producer.
In Asia, the volume of cocoa beans ground into basic ingredients, such as cocoa
around the world. A kilogram (2.2 pounds) of chocolate is forecast to cost
powder and butter, during the first quarter rose 3.7% from the year-earlier
an average
of $12.62
in the U.S.
year, upincreases
2% from last
and an 18%
The
worries
are swirling
as this
demand
foryear,
chocolate,
especially
theaccording
more cocoa-intensive
darkofchocolate.
Cocoa-grindings,
period,
to the Cocoa Association
Asia. Investors
see these so-called
increase over the last five years, according to Euromonitor.
cocoa
as a proxy for demand.
TheEurope,
next reading
due outper
this capita
month.
considered a barometer of chocolate demand by traders, rose 4.7% in
thegrindings
July-to-September
period in
theislargest
consumer
chocolate.
are due Thursday, and some in the industry predict an increase
Investors andofcandy
makersThe
are North-American
betting that chocolatecocoa
loversgrinding
will keep figures
on
Asia’s rising consumption is eating into global stockpiles. Cargill Inc., one of
swallowing
price increases.
Fund managers, hedge funds and other
of
around these
10% from
a year ago.
the world’s biggest cocoa processors, says global demand will outstrip supply
investors as a group have boosted their bullish bets in the cocoa-futures market
by 100,000-200,000 metric tons during the crop year that begins Oct. 1, with
by 45% in the
past eight
weeks,
according
U.S.are
Commodity
Futures a taste for the confection, and further straining tight supplies.
Emerging
markets
such
as Brazil
and to
inthe
India
also developing
inventories making up the balance.
Trading Commission.
CFG Asset Management, an investment adviser in Newtown Square, Pa.,
that manages about $335 million, bought shares in the iPath Pure Beta Cocoa
exchange-traded note, a security that aims to track cocoa prices, in November.
Matt Forester, the firm’s chief investment officer, added to the position in midJune, citing supply concerns amid rising demand.
“That is about as strong a signal as we can get,” Mr. Forester said, of prices near
three-year highs.
In Beijing last month, 34-year-old Sun Ji spent 4,980 yuan ($800) while
stocking up on sweets in a Godiva Chocolatier shop ahead of an August wedding
celebration. Not only has his family been eating more chocolate over the past
year, but it has become a popular gift for friends and colleagues, said Mr. Sun,
who works in information technology, adding that rising prices are unlikely to
quell their appetite.
“The price has gone up a bit this year, but increases of 20% or even 30% won’t
stop us from buying it,” said Mr. Sun.
A Sour Bean Sweetens Cocoa Supply
Growing Demand From Emerging Markets Is Pushing Up Prices for Key Ingredient in Chocolate
Updated March 19, 2014 9:05 p.m. ET By Leslie Josephs
With a name reminiscent of a “Star Wars” droid and a reputation
for having an acidic taste, the CCN 51 cocoa bean is an unlikely
savior of the $110 billion chocolate market.
But some confectioners and farmers look to beans from the
high-yielding CCN 51 tree to counter a looming shortage in the
production of cocoa even as others swear never to use it.
Global cocoa supplies are forecast to fall short of demand for
a second consecutive season. Candy makers are fretting as
consumption rises in developing nations like Brazil, China
and India, while cocoa-tree yields stagnate and some farmers
switch to other crops. M&M’s purveyor, closely held Mars Inc.,
estimates the world will need an additional one million metric
tons of cocoa by 2020, 25% higher than current annual output.
One potential solution: a variety of cocoa tree known as CCN 51.
Developed in Ecuador by an agronomist almost 50 years ago, the
variety can yield about four times as much cocoa as the world
average.
World cocoa production fell short of demand by 174,000 metric
tons in the season ended in September. This year, demand is
expected to outpace supplies by 115,000 tons, according to
the International Cocoa Organization, as emerging-market
consumers take a bigger bite out of global cocoa supplies. The
London-based trade group expects that trend to continue for
five years, which increases the need for a high-yielding variety.
On Wednesday, cocoa for delivery in May on ICE Futures U.S.
gained 0.4%, or $11, to settle at $3,025 a ton, near a 21Ž2-year
high.
Even after Mr. Castro successfully
developed the high-yielding variety,
its adoption was met with skepticism.
Leslie Josephs/The Wall Street Journal
“People
wanted
proof,”
said
Sergio Cedeño, a fifth-generation
cocoa farmer in Ecuador whose
grandfather’s farm was the site of
some of Mr. Castro’s research. “They
would say: ‘Those trees are going to
die in 10 years.’”
Ecuadorean growers started planting
CCN 51 in earnest after bad weather
hit the crop in the late 1990s. The
country’s output has more than
doubled in the past decade.
CCN 51’s own hyperproductivity also
has been its downfall. Cocoa beans
grow inside oblong pods. When the
pods are cut open, the beans are
Maximina Ventura, a cocoa farmer in Peru, holds up a CCN 51 pod, left, and a smaller, fine-flavored cocoa
covered in moist pulp. What gives
variety. The CCN 51 pod is the more productive of the two.
chocolate its flavor is the fermenting
Adopting the new variety across the tropics may sound like an process, when the beans are put in a box and left for four to six
easy decision given its higher productivity. But CCN 51 has days.
sparked a debate among chocolatiers. Big candy companies are
incorporating the new beans into their supply, but some specialty The CCN 51 variety produces more beans but also more pulp.
sellers say chocolate made from the beans doesn’t taste good. The fermenting process made the resulting chocolate too
Meanwhile, some confectioners worry the more productive overwhelming and gave the beans a sour, acidic flavor.
CCN 51 trees will displace the rich and flavorful varieties of
“I’m not going to let it in,” said Emily Stone, founder of Maya
cocoa in the Amazon River Basin, cocoa’s birthplace.
Mountain Cacao, a Belize-based cocoa-trading company that
Lindt & Sprüngli AG, the Swiss chocolatier that makes Lindor supplies small chocolate makers in the U.S.
truffles, said it doesn’t use CCN 51. The company recently helped
Change in the cocoa and chocolate industry often occurs
fund a study with the U.S. Department of Agriculture to devise
at a glacial pace. The prospect of CCN 51 is a touchy subject,
a way to test cocoa bean DNA to better weed out unwanted
especially in the Amazon rainforest, where cocoa originated
varieties.
and where cocoa farmers tout their beans’ unique and delicate
“The flavor of CCN 51…is flat,” said Francisco Javier Gómez, flavors. In Africa, growers fear that a switch to a single, albeit
international business director at Colombian chocolatier high-yielding, variety could leave the source of two-thirds of the
world’s cocoa supply susceptible to disease.
CasaLuker SA. “It’s for so-called mainstream products.”
For big chocolate makers, an increase in cocoa yields from
existing trees is essential for future chocolate production. Unlike
other major commodities like cotton or corn, which are annual
crops, cocoa trees take around four years to bear a commercially
viable harvest.
“CCN is a workhorse,” said Howard Yana Shapiro, chief
agricultural officer at Mars. “It’s a dream-come-true cultivar.” The
CCN 51 trees are highly productive and the beans in its pods are
larger and produce more cocoa butter than most other varieties.
Cocoa butter is used to give chocolate a creamy mouth-feel.
Mars and Cadbury maker Mondelez International Inc. MDLZ
-0.73% say the CCN 51 beans can appear in the cocoa butter
used to make their confections. Closely held Cargill Inc. and
Switzerland’s Barry Callebaut AG BARN.EB -2.04% , some of
the world’s biggest cocoa processors, say they do process CCN
51 beans.
CCN 51 was developed by Homero Castro, an agronomist
who was conducting independent research on cocoa in coastal
Ecuador in the 1960s. Mr. Castro was killed in a car accident in
1988.
The quality of CCN 51 beans is improving. The fermenting
process has been shortened over the last 10 harvests.
“The early CCN 51 was very sour in taste and was not seen as
a viable choice for making chocolate,” said Kip Walk, a threedecade veteran of the cocoa industry and sustainability director
for Chicago-based Blommer Chocolate Co., one of the largest
North American cocoa processors, which buys CCN 51 beans
from Ecuador. “That flavor has greatly improved, and CCN is a
part of chocolate formulas today.”
Even some of the world’s pickiest palates are starting to warm to
new beans.
Lene Hjort Lorenzen, corporate social responsibility and
innovation manager at Toms Gruppen A/S, a Danish chocolate
maker, which supplies the Royal Danish Court with treats like
pralines and truffles, said that while the company only buys fineflavor cocoa, not CCN 51 beans from Ecuador, it would be open
to it in the future.
“I have tasted CCN 51 that was fermented well, and the chocolate
was actually good,” she said.
Cocoa Prices Climb but Not Enough
to Boost Production, Industry Says
3:52 pm Oct 16, 2013 By Leslie Josephs
Chocoholics, brace yourselves.
Cocoa prices hit a two-year high of $2,770 a ton this week,
and some of the world’s biggest cocoa traders think they’re set
to rise even more.
Singapore-based trader Olam International Ltd.O32.SG
+0.97% says the world’s supply of cocoa beans will likely fall
short of rising demand by 185,000 metric tons in the season
that started this month. That’s more than double the deficit
the International Cocoa Organization has forecast.
The shortfall is driven more by demand than by supply problems, Olam’s cocoa head Gerry Manley told The Wall Street
Journal. The trend could lift prices of the key chocolate ingredient to $3,000 a metric ton this year, he said.
“But (that price) is still probably not enough” to encourage cocoa growers to increase production, Mr. Manley said.
The sentiment that prices are still too low to boost output was echoed throughout the World Cocoa Foundation conference in Santo
Domingo this week. Cocoa growers in some parts of the world have been switching to more profitable crops such as rubber and palm
oil or even dropping farming altogether to seek jobs in urban areas. Cocoa processors estimate that prices would need to rise by about
$800 a ton to entice farmers to invest more in their plantations.
“The crops that we compete with on the ground, we can’t compare with at current price levels,” said Kip Walk, head of sustainability
at Blommer Chocolate Co., a top U.S. cocoa processor that sells its products to large food companies.
Massimiliano Wax, a vice president at Santo Domingo-based cocoa exporter Rizek Cacao, says cocoa prices need to reach $3,500 to
keep farmers growing the beans.
Cocoa is currently underpriced, said Mr. Wax. “Farmers want electricity, air conditioning, a moped or even a car – you need money
to do that.”
Olam’s Mr. Manley estimates prices will have to rise to $3,800 a ton for farmers to switch from competing crops into cocoa.
Cocoa and chocolate companies, including Olam and Blommer, are trying to shore up supplies through programs including direct
investment in farms and third-party certifications that allow the farmers to sell the beans at higher prices.
But these programs carry a cost, and increasing productivity doesn’t come cheap.
“In order to do all of this great stuff, the price of chocolate is going to go up,” said Ruth Moloney, head of development and sustainability for the Americas at U.K.-based trade house Armajaro Ltd., a major cocoa producer.
The worries are swirling as demand increases for chocolate, especially the more cocoa-intensive dark chocolate. Cocoa-grindings,
considered a barometer of chocolate demand by traders, rose 4.7% in the July-to-September period in Europe, the largest per capita
consumer of chocolate. The North-American cocoa grinding figures are due Thursday, and some in the industry predict an increase
of around 10% from a year ago.
Emerging markets such as Brazil and in India are also developing a taste for the confection, and further straining tight supplies.