Cargill Sees Cocoa Crunch Lasting Until Surplus Crop in 2017

  • Supplies will remain tight until the end of the year: Poelma
  • Market will face surplus of more than 200,000 tons next season

A cocoa crunch that curbed processing in the world’s largest producing nations will last until a surplus forecast for next season starts reaching the market, according to Cargill Inc.

Dry weather that hurt crops in top-growing region West Africa this season will also mean the peak of bean deliveries from the bigger of two annual harvests that starts next month will be delayed, said Harold Poelma, president of Cargill Cocoa and Chocolate, the world’s second-largest grinder. Processors will find it hard to get hold of good-quality beans before a surplus of more than 200,000 metric tons hits the market next year.

Cocoa futures traded in London climbed to a six-year high in July overtaking levels seen during the civil war in Ivory Coast, when a ban on exports was imposed in the world’s leading grower. Higher prices, limited supplies and poor-quality beans have made it harder for processors in producing countries to grind, with many factories including Cargill’s slowing down, Poelma said.

“The industry will still have a quite difficult time to get sufficient decent-quality beans until the end of the year,” he said Thursday in an interview at the European Cocoa Association’s Forum in Dubrovnik, Croatia. “It will be quite tight and that tightness is mainly felt in origin countries because, in principle, in Europe there’s sufficient cocoa.”

‘Big’ Deficit

The worst Sahara desert winds in more than three decades helped dry out this season’s crop, resulting in a “big” deficit this season, Poelma said, without providing an estimate. Rains that returned to Ivory Coast and Ghana last month are boosting prospects for the next crop, which will eventually result in a “very healthy” surplus, he said. Precipitation in Ivory Coast and southwestern Ghana has been above normal since Aug. 1, according to MDA Weather Services.

A lack of beans and lower quality has limited grindings in producing countries and caused the price of cocoa butter, which accounts for about 20 percent of the weight of a chocolate bar, to spike ahead of the peak demand period, when chocolate makers are preparing for Halloween and Christmas. The cost of cocoa butter relative to bean futures, the so-called ratio, climbed 24 percent this year, according to KnowledgeCharts, a unit of Commodities Risk Analysis.

“From a European perspective or from a North American perspective, the butter is needed now,” Poelma said. “If you don’t produce today in origin you will not be able to meet the demand which needs to be serviced in Europe and North America in the coming two months.”

Futures Markets

Bean shortages this season are also causing tension on the futures markets, with the premium cocoa for December commands over the March contract rising more than 10 pounds ($13) a ton this week, ICE Futures Europe data showed. While the crunch will make it harder to deliver cocoa to the exchange when futures expire Dec. 13, buyers’ appetites will be tempered by the prospect of next year’s surplus, Poelma said.

“By the time you would take delivery of the cocoa on the December, there will be sufficient new crop shipments coming into Europe,” he said. “The physical cocoa that’s on the terminal market has value in the fourth quarter.”

Cargill is expanding its activities in Ghana, the world’s second-largest producer. The Minneapolis-based trader is setting up a license-buying company to source beans directly from the Ghana Cocoa Board, Poelma said. The company expects to start its Ghanaian sourcing next season.

“The Ghana Cocoa Board has been very positive as well on us becoming a more active player on the ground,” he said. Buying cocoa directly from the board “allows us to get closer to the farmers to drive cocoa sustainability.”

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