Cocoa Drops to Two-Year Low as Ample Supply May Cut Hershey Cost

Cocoa fell to the lowest since July 2009 as rising output from West Africa and slowing economies in the U.S. and Europe signaled supply may exceed demand for a second year.

Cocoa exports from the port of San Pedro in Ivory Coast, the world’s biggest producer, more than doubled to 26,094 metric tons in September from a year earlier, the harbor reported last week. Ghana, the second-largest grower, may produce more than 1 million tons in the 2011-2012 season, the government said Oct. 14. Prices tumbled 17 percent last quarter as escalating debt woes threatened global expansion.

The decline in cocoa may lower costs for companies such as Hershey Co. (HSY), Kraft Foods Inc. (KFT)’s Cadbury unit and Nestle SA. The United Nations’ Food and Agriculture Organization’s world food price index has dropped 5.3 percent since reaching a record in February, after risings grocery costs helped trigger protests from Tunisia to Yemen. The Standard & Poor’s GSCI Index of 24 commodities tumbled 12 percent last quarter, the most since the end of 2008.

“With the global economy the way it is right now, the demand isn’t there” for cocoa, Thomas Mikulski, a senior strategist at MF Global Ltd., said by telephone from Chicago. “It’s hard to buy chocolate when you can’t afford Spam.”

Cocoa for December delivery fell 1.9 percent to settle at $2,571 a ton at 2 p.m. on ICE Futures U.S. in New York. Earlier, the price touched $2,523, the lowest for a most-active contract since July 9, 2009.

‘Too Much Supply’

“The whole basis of the drop is the Ivory Coast and Ghana crops, and that faltering demand in Europe and the U.S. will add more to the surplus,” Shawn Hackett, the president of Hackett Financial Advisors Inc., said in a telephone interview from Boynton Beach, Florida. “There’s too much supply.”

While the surplus will narrow from last season’s record 325,000 tons, producers will harvest more than the world consumes in the 2011-2012 season, Jean-Marc Anga, the executive director of the International Cocoa Organization, has said.

Hershey has rallied 27 percent this year as cocoa prices declined, pushing the chocolate maker’s shares to the biggest premium to profits since 2008, data compiled by Bloomberg show.

“Overall commodity prices are still going to be a pressure, but companies will take all the help they can get” on costs, Jack Russo, an analyst with Edward Jones & Co. in St. Louis, said today in a phone interview. “Everybody in the sector would be glad to see some normalization in prices, because we’ve seen some pretty big spikes the past few years.”

Cocoa has plunged from a 32-year high of $3,775 on March 4 after Cargill Inc., Archer Daniels Midland Co. and Barry Callebaut AG resumed exports from Ivory Coast. Supplies were interrupted starting in late November after a civil war erupted following a disputed presidential election. Laurent Gbagbo, whose refusal to step down started the conflict, was captured on April 11.

To contact the reporter on this story: Joe Richter in Washington at jrichter1@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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