Cocoa processing slowed last quarter and industry experts warn a steeper decline is looming as the ripple effects of skyrocketing cocoa prices hit chocolatiers globally.
Despite an historic shortage that sent cocoa prices to record highs this year, the impact on chocolate makers has been somewhat delayed.
However, as stockpiles of pre-crisis beans dwindle, manufacturers will soon face the full brunt of the price surge.
Cocoa prices soared to an all-time high of over $11,000 per ton in April due to poor harvests in West Africa, a key production region. Though prices have slightly eased, they remain more than double what they were a year ago.
This surge has not yet fully translated into higher costs for chocolate makers, who had previously secured beans at lower prices.
However, with inventories running low, the need to replenish supplies at higher costs is expected to significantly impact cocoa grindings in the latter half of the year.
Jonathan Parkman, head of agricultural sales at Marex Group, explained, “The cheap stuff is beginning to drop off, and the expensive stuff is coming in. The worst of input inflation will affect the second half of this year.”
A recent Bloomberg survey of six analysts and traders revealed that second-quarter cocoa grindings likely fell from a year earlier.
Processing in Europe, the largest consumer of cocoa, is estimated to have declined by 2%, potentially marking a four-year low.
All six analysts anticipate a larger global decline in the second half of the year.
Nestlé SA has already signaled the challenges ahead. An executive from the company warned last month that as manufacturers face higher cocoa costs, they will have to pass these expenses onto consumers, leading to a potential decrease in chocolate consumption.
Darren Stetzel, vice president of soft commodities for Asia at broker StoneX, echoed this sentiment, noting, “We are more likely to see a significant change in the grind number in the second half of the year.”
The rising costs have forced some cocoa processors to shutter factories, particularly in West Africa. This, combined with the tight supply of beans, has made it difficult to gauge true demand.
Traders and analysts are closely watching upcoming cocoa grinding data and earnings reports from major chocolate companies, such as Barry Callebaut AG, for further insights into the market.
To adapt to the high costs and scarce supply, some chocolate manufacturers have started using substitutes like palm oil to maintain production levels.
However, this is seen as a temporary fix rather than a long-term solution.
The cocoa crunch underscores the vulnerability of global supply chains to regional disruptions. As the second half of the year unfolds, the chocolate industry will be forced to navigate these challenges, balancing the need to secure sufficient cocoa supplies with the pressures of maintaining affordability for consumers.
