Cocoa Market Trends
Category Intelligence on Cocoa covers the following
- Information relating to market, supply, cost, and pricing analysis
- Hard to find data on cost and TCO models, supplier details, and performance benchmarks
- Macroeconomic and regional trends impacting cost, supply, and other market dynamics
- Category-specific negotiation and sourcing advice
Industry Outlook & Drivers
Global Cocoa Market Outlook
Cocoa prices are expected to rise, due to steep demand, especially for cocoa butter, which is extracted from cocoa pods.The prices are expected to decrease from December 2017 and then increase from February 2018. Estimated price lock in August 2018 for three months could lead to a saving of 0.6 percent, six-month lock could save 1 percent, and 9 months will save 1.2 percent compared to spot buying. The percentage difference is minimal, however with erratic climate spot buying will lead to very high price compared to price lock contracts
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Contract Structures
Direct Buying from Farmers >2-–3 years
- Direct buying from farmers is usually carried over in long contracts for efficient procurement
- This type of contract has a constraint of reaching the farmers regularly and supplying them technical management, which companies perform as a sustainability action
- Buying from intermediates may be an easier option of spot buying at a cheaper price
Buying from Intermediates (6–12 months) Short Term/Spot buying
Farmers do not get fair pay, and hence, the sustainability of cocoa market prices, in the future, would be questionable
Buying through Co-operatives >2 years
- Presence of co-operatives, who liaise between the farmer and the buyer, usually take care of a fair price at both the ends
- Usually, this type of contract is long term for more than 1–2 years
- The active participation of co-operatives is directly correlated to the country's political influence and unification of the farmers, which is a drawback of this contract
Cocoa - Supply Analysis
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Ghana introduced the hand-pollination method last year leading to an increased production to above 900,000 metric tons according to the regulator. For the incoming season Ghana is expected to produce well above the same mark again. The cocoa grinding sector in Ivory Coast, despite an increase in bean output in 2017/18, is facing a challenge. This is due to the current military and social unrest in the country, hindering investment opportunities
- West African countries (Ivory Coast, Ghana, Nigeria) continue to dominate the cocoa bean production over the years because of favorable climatic conditions prevailing in these regions. Apart from West Africa, Indonesia is the major producer of cocoa beans
- There are concerns about the crop from West African nations –Ivory Coast and Ghana, due to poor bean quality. Ghana is expected to partly offset the decline in production from Ivory Coast
- Emerging markets, like Jamaica, are receiving government support and aid to develop their cocoa farming and processing capabilities
- In 2017, grindings are estimated at 4.03 MMT, which is a rise of nearly 10 percent from 2015 grindings (3.8 MMT)
Cocoa Beans - Supply Analysis
- The prospects of an improved harvest from West Africa (70 percent of World's cocoa) is looking up, mainly attributed to the less severity of the Harmattan winds (than anticipated)
- Post the 2015 supply crunch, owing to adverse growing conditions, the La Nina brought favorable rainfall in the second half of 2016, leading to a commensurate surplus overall in 2016
- If good weather conditions prevail, a second surplus in 2017 can be anticipated. However, the El Nino in 2017 may limit prospects of the crop output, with the production estimates needing emendation
- This supply surge is viewed as a temporary glut, and supply crunch may resume by the second half of 2017, as most of the crops are stuck in logistics and rotting on the plant
- With increased supply anticipated, if the current unprofitable situation for farmers does not improve, it may cause them to shift to alternate crops, which could consequently resume a firm market situation
