Cocoa costs not but displaying indicators of demand destruction

Analysts consider the price of the core chocolate ingredient might have room to increase its record-breaking run, with no signal of serious demand destruction but on the horizon.

Issues over the availability of cocoa in West Africa, residence to round three quarters of the world’s manufacturing, have pushed the market larger in latest months.

In New York, benchmark ICE cocoa futures stood at $6,549 per metric ton on Wednesday. The contract, which surpassed $6,000 for the primary time final month, has climbed greater than 57% year-to-date.

Considerably surprisingly, the historic worth surge has not but hampered world demand.

“Typically, what you’d expect when you have any sort of agricultural commodity, you’d expect to see some demand destruction when you have these astronomically high prices — but we’re not seeing it in cocoa,” Paul Joules, commodities analyst at Rabobank, informed CNBC’s “Squawk Box Europe” on Wednesday.

“You could say that one of the reasons we’ve seen cocoa hold up fairly well in terms of demand is it is arguably a compulsive purchase for consumers, so we don’t really see it have the same sort of demand dynamics as many other commodities,” he added.

“Also, a lot of these processes, they would have contracts in advance. So, they are still processing, they still have factories that they have to use and operate, so it’s not necessarily [the] case that we would see this immediately in the figures.”

Rabobank’s Joules mentioned that he anticipated to see some demand destruction within the second half of the yr, including that the present provide and demand image is “very, very tight.”

U.S. chocolatier Hershey, one of many world’s largest chocolate corporations, issued a revenue warning final month on hovering cocoa costs. The maker of Reese’s Peanut Butter Cups said in a press release on Feb. 8 that cocoa costs have been anticipated to restrict earnings development this yr.

“The key question, and also the toughest, is how much higher cocoa prices can go,” Warren Patterson, head of commodities technique at ING, mentioned in a research note printed on Feb. 15.

“They need to go to levels where we start to see significant demand destruction. We are already seeing some of that already, but clearly not enough to bring the market back into balance and ease tightness concerns.”

Patterson mentioned West African cocoa provide stays the “big concern” amongst market individuals. That is as a result of the Ivory Coast is estimated to account for about 44% of worldwide provide, whereas Ghana holds a share of roughly 14% of output, he famous.

“Last year, heavier-than-usual rainfall raised concerns over the impact it would have on the crop, with rising cases of black pod disease. Heavy rains also led to issues over cocoa being delivered to ports,” Patterson mentioned.

“This year, drier weather conditions and strong Harmattan winds are raising only further concerns over how the current crop evolves.”

El Niño-related dryness in a lot of Southeast Asia, India, Australia and elements of Africa has fueled a price rally for mushy commodities reminiscent of cocoa, sugar and occasional in latest months.

The El Niño phenomenon is a naturally occurring local weather sample that takes place when sea temperatures within the jap Pacific rise 0.5 levels Celsius above the long-term common. It could pave the best way to extra storms and droughts.