By Ese Erheriene
LONDON--Cocoa consumption fell surprisingly sharply in the final
months of 2014, a sign the broader global slowdown is having an
effect on even those with a sweet tooth.
Data published on Thursday showed that grinding of cocoa beans
in Europe fell 7.4% on the year in the fourth quarter to 323,061
metric tons. The figure published by the European Cocoa Association
was well below market expectations of a decline of between 2% and
5%.
The decline is seen as a broader indicator of a slump in demand
for chocolate, in an environment of weak global growth. Europe is
by far the biggest consumer and producer, accounting for about 40%
of the global production of cocoa liquor, cocoa butter and cocoa
powder.
"We interpret the grind data as a sign of a weaker demand
environment," said Cargill Inc., one of the world's biggest cocoa
processors, in a written response to questions. "We expect this
environment to persist in the coming quarter."
The U.S. food giant recently made a big bet on chocolate demand
in Asia, investing $100 million to build a cocoa-processing
facility in Indonesia, the world's third-largest grower of cocoa
beans.
Others have too. In December, Singapore-based crop trader Olam
International Ltd. agreed to buy Archer Daniels Midland Co.'s
global cocoa operations for $1.3 billion, adding eight factories
with 600,000 metric tons of annual production capacity.
Cargill, which is a member of the ECA and contributes its grind
data to the overall regional tally, called out Germany as being the
main driver of the decline in the fourth quarter, with the country
reported as down 14% year on year.
"The grind data in Europe should be read in global context,
considering also the dynamics in Africa and Asia. We estimate that
grind in Africa increased, especially in Ivory Coast, whereas we
expect that grind in Asia declined in the fourth quarter, likely in
the double-digit range," Cargill said.
Earlier this month, data from Malaysia--another major cocoa
producer--showed grindings there were down by roughly 20% on the
year. A clearer picture will emerge once data from the U.S.
National Confectioners Association is published later Thursday.
Data from the Cocoa Association of Asia comes out on Jan. 21.
"If we've got a weak Asian grind, which seems very likely given
the [Malaysia] number we already have; we've now got the European
grind; we expect the U.S. grind to be strong...but it isn't going
to make up the difference. So, over all it looks quarter-on-quarter
like the global grind is actually going to be down quite
significantly on this time last year," said Jonathan Parkman, joint
head of agriculture at London-based broker Marex Spectron.
On Thursday, cocoa futures for delivery in March were down 0.2%
at GBP2,044 ($3,100) a metric ton. The market recovered in European
afternoon trading, having been down as much as 1% shortly after the
data was released. Prices may have further to tumble.
"The industry doesn't really feel like there is too much of an
increase in demand globally, [and] there's a fight between the
trade and the industry at the moment--the industry isn't really
willing to be paying up at these levels for cocoa beans," said a
broker at Sucden Financial in London.
Write to Ese Erheriene at ese.erheriene@wsj.com
Access Investor Kit for Olam International Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=SG1Q75923504
Access Investor Kit for Archer Daniels Midland Co.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US0394831020
Subscribe to WSJ: http://online.wsj.com?mod=djnwires