Cocoa Seen at Highest Since 1979 on Africa-Indonesia Fix: Freight Markets

The U.S., the world’s biggest market for chocolate, is importing the most West African cocoa in three years as disease and taxes curb Indonesian supply,

driving prices to a three-decade high.
Cargoes from Ivory Coast, Ghana, Togo and Nigeria rose 2.6 percent to 145,394 metric tons in the first four months while those from Indonesia fell 88 percent to 7,301 tons, U.S. trade data show. Increased competition for beans will mean cocoa averaging $3,300 a ton in the fourth quarter on ICE Futures U.S. in New York, 8.2 percent more than now and the most since 1979, said Kona Haque, the analyst at Macquarie Group Ltd. in London who correctly predicted a rally in February.
“For the U.S. bean grinder, the lack of Indonesian beans has raised costs and diminished a regular supply in their formula,” said Peter Johnson, president of Morristown, New Jersey-based Transmar Commodity Group Inc., which has supplied manufacturers with cocoa for three decades. “The trick is, how do you replace what used to be a cheapening agent that isn’t so cheap anymore? The first thing is you use more African beans.”
Cocoa is not alone as surging demand for everything from oil to tin means supply is falling short of demand. Nestle SA (NESN), the world’s largest food company, is forecasting the biggest- ever increase in its raw-material bill and Hershey Co., which began making chocolate more than a century ago, increased prices by an average of 9.7 percent in March. The cost of living in the U.S. rose 3.6 percent in May, the biggest year-on-year gain since October 2008, the Labor Department said June 15.
Cocoa Leading
Cocoa traded in New York averaged $3,159 this year, heading for the highest annual average since 1978. The beans led gains in the Standard & Poor’s GSCI index of 24 commodities in the second quarter, rising 6.7 percent as the gauge declined 7.8 percent. The MSCI All-Country World Index of equities dropped 0.5 percent and Treasuries returned 2.4 percent, a Bank of America Merrill Lynch shows.
The U.S. consumed 1.4 million tons of chocolate last year, generating $17.6 billion of sales, London-based Euromonitor International Ltd., a consumer research company, estimates. Cocoa represents about 10 percent of the price of the average chocolate bar, according to the International Cocoa Organization in London, whose members account for about 85 percent of global production and 60 percent of consumption.
An average cocoa tree produces about 30 usable pods a year, yielding enough beans to make about 2 pounds of dark chocolate, according to information on a Hershey website.
Steel Containers
Cocoa is normally hauled across oceans in 20-foot-long steel containers by companies including Copenhagen-based A.P. Moeller-Maersk A/S, the world’s largest container shipper. There has been an acceleration of West African beans to the U.S., said Kenni Simon Skotte, general manager of Europe-West Africa trade at Maersk Line.
An index reflecting charges for six types of container carriers rose 19 percent since the end of December, according to the Hamburg Shipbrokers’ Association. That compares with a 18 percent decline in rates for shipping dry bulk commodities such as iron ore and coal and a 91 percent plunge in the benchmark cost of hauling oil on supertankers, according to data from the Baltic Exchange. The London-based bourse publishes daily rates for more than 50 maritime routes.
Shipping companies will lift 549 million 20-foot-equivalent containers this year, about 9.1 percent more than in 2010, according to Clarkson Research Services Ltd., part of the world’s largest shipbroker. Trade will expand another 9.3 percent to 600 million units in 2012, the research unit estimates.
Fleet Expansion
The global fleet of 4,750 container ships expanded 4 percent in the past year, according to Redhill, England-based IHS Fairplay. Owners have made orders for new ships equal to 26 percent of existing capacity, the data show. About 90 percent of global trade moves by sea, the Round Table of International Shipping Associations estimates.
The growth in U.S. imports of West African cocoa is being driven by a drop in the availability of beans from Indonesia, the world’s third-biggest grower behind Ivory Coast and Ghana. The Asian nation’s output will probably decline 13 percent to 500,000 tons this year, Dakhri Sanusi, secretary-general of the Indonesia Cocoa Association said June 9. A longer and wetter- than-normal rainy season last year helped spread vascular streak dieback, a fungal disease that can kill trees.
Indonesia’s government also wants to ship fewer raw beans and expand its processing industry to create jobs. The state imposed an export tax of 5 percent to 15 percent in April 2010, allowing local grinders to offer higher prices to farmers. The tax increases as New York futures rise. Domestic processing may advance to 400,000 tons of cocoa products next year, compared with 280,000 tons this year, Piter Jasman, chairman of the cocoa industry association, said July 8.
‘True Value’
“The tax structure and poor crop in Indonesia is pushing prices above what the market perceives as true value,” said Kip Walk, director of cocoa for Chicago-based Blommer Chocolate Co., which says it is the largest processor of the beans in North America. By contrast, “a bumper crop in West Africa has provided lower prices out of that region.”
Production in Ivory Coast will expand 4.6 percent to 1.3 million tons in the crop year ending Sept. 30, while in Ghana it will advance 52 percent to 960,000 tons, the International Cocoa Organization estimated in June. Nigerian output will be little changed at 240,000 tons, the group said.
Futures markets are anticipating no decline in prices until at least 2013, with cocoa for delivery a year from now trading at $3,117. Speculators are also getting more bullish with the net-long position, or bets on higher prices, expanding for four consecutive weeks to 16,627 contracts, the most in three months, according to U.S. Commodity Futures Trading Commission data.
No Relief
That signals no relief for consumers. Hershey, based in the town of the same name in Pennsylvania, announced its wholesale price increases on March 30, citing costs including raw materials, packaging and fuel. Vevey, Switzerland-based Nestle said June 8 its raw-materials bill may rise by as much as 3 billion Swiss francs ($3.6 billion) this year, the biggest gain ever. The company’s candy brands include Smarties and Aero.
The growth in West African exports to the U.S. is also surprising because it came despite a two-month ban on shipments in Ivory Coast that ended in April. The curbs were imposed by then President-elect Alassane Outtara, who was seeking to deny funds to his rival Laurent Gbagbo. The conflict that began with disputed presidential elections at the end of November ended with the arrest of Gbagbo in April.
U.S. Imports
The U.S. imported 49,295 tons from Ivory Coast in January and 63,949 tons in February, dropping to 1,458 tons in March and 252 tons the following month, U.S. Department of Agriculture data show. The slump in Ivorian supplies helped drive cocoa futures to a 32-year high of $3,775 in March.
After the end of the export ban to the end of June, a “significant portion” of the 180,000 tons shipped headed to the U.S., according to Gerry Manley, global head of cocoa at Olam International Ltd., a Singapore-based commodity trader with more than 10,000 customers. Ivory Coast may produce a record 1.6 million tons this year, and Ghana 900,000 tons, also the most ever, he estimates.
The lack of Indonesian beans combined with the Ivory Coast export ban also drove the U.S. to other West African suppliers. Ghanaian shipments advanced 28 percent in the first four months and those from Nigeria jumped 156 percent, USDA data show. Cargoes from Togo, to the east of Ghana, reached 3,285 tons, compared with nothing in the previous two years.
The competition for beans may intensify in the next crop year that starts Oct. 1 as supply once more falls short of demand. Globally, farmers will reap 3.68 million tons in the 2011-12 crop year, 5.3 percent less than this year, ABN Amro Bank NV and VM Group estimated in a June report. That will leave a global shortfall of 94,000 tons, they said.
“I suspect the New York cocoa market will outperform London” until the end of the third quarter, said Haque of Macquarie. “Indonesia is the only bullish story in cocoa supply and demand at the moment.”
Source: Bloomberg