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Barry Callebaut, Mondelez See Cocoa Trading Sideways

Cocoa prices, which averaged about $2,328 a metric ton this year, will trade sideways in the season that started last month, according to chocolate makers Barry Callebaut AG and Mondelez International Inc.

While the global cocoa market will face a small shortage in 2012-13, chocolate demand will be “slightly” below historical levels, said Steven Retzlaff, president of global sourcing and cocoa at Barry Callebaut, the largest maker of bulk chocolate and a supplier to Nestle SA. The market will be easier to predict this year as the weather hasn’t been extreme, said Tim Cofer, European president for Mondelez, which spends $6 billion a year buying raw materials and has a 15 percent share of the chocolate market.

“From a weather conditions standpoint, we are not seeing severe droughts or floods, so in the near-term, it looks like a more predictable and sideways market,” Cofer said yesterday in an interview in top producer Ivory Coast at a conference organized by the London-based International Cocoa Organization, which represents 41 members.

Cocoa has climbed 15 percent on ICE Futures U.S. in New York this year, partly on speculation dry weather in West Africa, which accounts for about 70 percent of the world’s supplies, would damage 2012-13 crops. Price gains have been limited by a slowdown in global demand and excess supplies from the previous two seasons.

Supply Surpluses

Bean processing slid 0.7 percent in 2011-12, according to London-based broker Marex Spectron Group. Cocoa supplies exceeded demand in both 2010-11 and 2011-12, Judy Ganes-Chase, president of J. Ganes Consulting LLC, said in an interview in Abengourou, eastern Ivory Coast.

“On the supply side, I don’t think we will see the same supply level as the previous year,” Retzlaff said in an interview in Abidjan, Ivory Coast’s commercial capital, adding that crops in West Africa were likely to be smaller. “We were fortunate that in the past two crop years we’ve had surpluses.”

Global chocolate sales by weight will rise 2.2 percent next year after growing 1.5 percent in 2012, according to data from Euromonitor International Ltd. Sales grew by 2.2 percent in 2011, according to the London-based consumer research company.

The long-term average growth in chocolate sales is 2 percent to 3 percent, Juergen Steinemann, Zurich-based Barry Callebaut’s chief executive officer, said on a media call on Nov. 7. In Europe, chocolate sales volume was unchanged in the first 9 months of 2012, Cofer said. Western Europe accounts for 32 percent of global chocolate demand, followed by North America at 20 percent, according to accounting company KPMG LLP.

Encouraging Quality

While the cocoa season in West Africa has been slow to start, Barry Callebaut is “very encouraged” by the quality of the beans in Ivory Coast, which is “very good,” Retzlaff said. Farmers in both Ivory Coast and Ghana, the world’s second-largest producer, are still holding “a lot of cocoa” up-country, he said. Global cocoa production will be 4.05 million to 4.2 million metric tons in 2012-13, up from 3.99 million tons a year earlier, Ganes-Chase estimates.

Cocoa prices also climbed on speculation industry reforms in Ivory Coast would disrupt shipments. The West African nation is making changes to its cocoa sector that include selling 70 percent to 80 percent of the crop before the harvest starts and providing a price guarantee to farmers that is 60 percent of international values.

Cocoa gained as much as 3.4 percent on Nov. 14 after President Alassane Ouattara dissolved the government. A new government will be formed this week, Massere Toure, head of the presidency’s communications, said on Nov. 18. Cocoa reached a 32-year high last year after a disputed election in Ivory Coast in November 2010 resulted in five months of violence and a ban on bean exports.

Political Instability

“Obviously, political instability that we have seen more recently in Ivory Coast was not friendly to the market and caused quite a bit of concern on supply,” said Cofer, of Deerfield, Illinois-based Mondelez. “I see more political stability right now.”

The cocoa market may face ongoing supply shortages by 2020 if companies don’t invest in boosting productivity, according to Mondelez. About 50 percent of all the raw materials the company buys are tropical commodities including cocoa and coffee. Cocoa supplies could outpace demand by as much as 1 million tons in the next 10 years, Barry Callebaut estimates. That would equate to about 25 percent of global production.

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