The National Confectioners Association (NCA) yesterday released Q2 grinding data from major processors such as Mars, Cargill and Hershey that showed a 8.64% drop in North American cocoa grindings to 120,359 metric tons (MT).
The European Cocoa Association (ECA) also this week published Q2 grind stats for Europe, which showed a minimal 0.56% rise to 309,677 MT.
‘They are losing money’
Laurent Pipitone, director of the International Cocoa Organization’s (ICCO’s) economic division, told ConfectioneryNews: “There’s a lot of pressure on the margins of the [processing] companies. They are below their break-even point so they are losing money.”
Profitability for cocoa processors hinges on the ratio between input prices (price of cocoa beans) and output prices (price of cocoa butter and powder).
Pipitone said the break-even point for cocoa processors is a combined butter-powder ratio of about 2.8, while the current combined ratio is only around 2.7.
Weak chocolate demand
He added that the economic situation in Europe and the U.S. had weakened demand for chocolate.
Both Lindt and Barry Callebaut registered revenue growth in financial results posted in the past few weeks, but the two firms complained of weak global chocolate markets due in part to industry-wide wholesale price increases in a challenged global economy.
“The consumer is looking for premium chocolate, but is not prepared to pay more,” said Pipitone.
Last year, major branded chocolate companies such as Hershey, Nestlé, Mondelēz and Mars Chocolate North America rose wholesale prices due to rising input costs, particularly from cocoa.
More wholesale price hikes?
Cocoa prices continue to rise, up 5% in June compared to the previous month, according to the ICCO’s monthly averages, with prices climbing further still in July.
So is another bout of wholesale chocolate prices to offset commodity costs unavoidable?
“It depends if the high cocoa price is maintained over time,” said Pipitone. “It’s not only cocoa that comes into play – it’s relatively small part of the costs.”
According to Euromonitor International, cocoa accounted for just 14% of manufacturing costs to produce a 100 g chocolate bar in May 2014.
Pipitone said many chocolate companies had downsized products, while some had reformulated to mitigate rising cocoa costs.
Asia forecast
The Cocoa Association of Asia has yet to release cocoa grind figures for the region, but Malaysia has already reported a 29.9% drop.
The ICCO says that the Indonesian grind should absorb some of the loss from Malaysia, but processing growth for the region is expected to slow compared to historic levels.