Cocoa scarcity distorts grinding data’s role as guide of demand
As the cocoa crisis deepens, grindings figures that have long been used to gauge chocolate consumption are becoming a less reliable indicator of demand.
New global figures are due Thursday on so-called grinds, where cocoa is turned into butter and powder that end up in everything from candy bars to ice cream. They’re usually used to help measure purchases, but are being increasingly driven by huge shortages that have rattled the market and made it much harder for chocolatiers to get hold of beans.
Traders and analysts expect first-quarter grindings fell in Europe, Asia and North America versus last year, though estimating how much is difficult. Prices have soared to a record as bad African harvests leave the world desperately short. That’s raising chocolate costs and stressing buyers and traders, who are scrambling to secure beans but wary of being burned by the volatile market.
“This market’s like a hot potato. Who’s going to be buying the cocoa at these prices and grinding it, hoping to be able to sell it without the market collapsing on them?” said Judy Ganes, president of J Ganes Consulting. “It becomes a risky proposition paying for the cocoa at these levels and that’s going to slow the grind.”
Faced with a lack of beans, some plants in West Africa have halted production intermittently, while at least one major Asian processor has been paying premiums to book beans from minor growers to secure supplies.
Pressure has been mounting since last year. Full-year grindings in Europe and Asia slipped to the lowest since the pandemic, while North American processing dropped more than 9%, data showed in January. Some traders at the time began viewing the drop as a reflection of tight supply rather than weak demand.
The rally has since accelerated at an unprecedented rate, and the worsening crunch is making it even trickier to interpret consumption using grindings.
The figures “might be a little bit misleading,” said Steve Wateridge, head of research at Tropical Research Services. Grindings “may be weak, not because of lower final demand, but because of a rundown” in grinders’ own inventories.
Prices will keep rising unless about 10% of demand is destroyed or African farmers can use more fertilizer, aiding harvests, said Northon Coimbrao, director of sourcing at chocolatier Natra.
While grindings are still useful, other information — such as chocolate company earnings reports — are also needed for a better picture of supply and demand, said Vladimir Zientek, a trading associate at financial services firm StoneX Group Inc.
The International Cocoa Organization in February estimated that global grindings will fall almost 5% to 4.78 million tons this season.
Some first-quarter figures are already out. In Brazil, grindings for the period fell about 6% from a year earlier to almost 60,000 tons, though were near historical levels.
Still, access to local cocoa supplies, combined with weaker domestic demand, could help Brazil export more powder and butter even as it reduces beans imports. Processing there could also be more competitive as plants run at greater capacity than some overseas, said Laerte Moraes, a managing director for Cargill Inc.’s South American food ingredients unit.
For now, global grinders are facing a tough environment. Cliff Shelton, an economist at agricultural lending firm AgAmerica, is among those expecting weaker numbers this week.
“The current market conditions place too much stress on processors to expect much else,” he said.
