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Price news

We think there might be several reasons to the flatten furtures curve. One reason could be like Credit Suisse explained on the 29 of February cocoa prices, citing ample supplies of the chocolate-making ingredient amid weaker consumption. The cocoa prices this quarter and in 2012 will likely average $2,200/ton and $2,000/ton respectively. The recent pricing gains in the cocoa market are reflective of investor concerns around the size of the Ivorian crop and mixed news on the participation of exporters in the country’s forward sales auctions.

Indeed the Ivorian harvest have been bad quality many buyer have been rejecting several deliveries as beans were small and had low chocolate content – a likely symptom of months of poor rains and high winds. On addition some buyers struggling to fulfil supply contracts tried, but failed, to lure in higher quality beans by offering higher prices at the port of Abidjan.

But, the bank warned that current price levels don’t reflect the market’s fundamental backdrop of ample supplies.

“While much of the attention has been focused on Ivory Coast’s crop prospects, the outlook for Ghanaian and Nigerian output still looks healthy,” the bank said.

Meanwhile, the demand picture for the cocoa market remains weak as the economic climate points to lower consumption, especially in Europe.”[1]

Cocoa supply chain

The supply chain is a series of activities necessary to convert raw materials into final products meant for the consumer.

Here we have a physical supply chain for cocoa:

From this figure we can try to understand a little more the different actors in this supply chain. Not all of the companies working in the cocoa industry are vertically integrated and present in all the stages of this supply chain. There are actually no companies vertically integrated all the way down this supply chain, the integration involves the trading and processing stages of the industry.

We can nowadays distinguish 3 types of companies operating in this industry.

First, the companies with backgrounds in commodity trading and are now widely diversified, such as ADM (Archer Daniels Midland) and Cargill.

Then we have companies, which produce semi-finished cocoa products and “couverture” such as Barry Callebaut, Petra foods and Bloomer.

And finally we have the large chocolate companies, which are active in the branded consumer market with finished products, such as Nestlé, Cadbury, Ferrero and Cemoi.

What we can see is that the cocoa industry is constantly evolving, some companies tend to be more vertically integrated such as Cargill and others prefer to deintegrate and focus on their core activity, for example Nestlé which sold its cocoa processing facilities in York (UK) to Cargill in 2004.

Sources

http://www.unctad.org/infocomm/comm_docs/docs/official/ditccom20081.en.pdf

http://www.tdtvictoria.org.au/rightmove/activity5.htm

http://www.marketwatch.com/story/credit-suisse-revises-down-cocoa-price-forecasts-2012-02-29

http://af.reuters.com/article/investingNews/idAFJOE82506220120306

cmegroup.com

https://www.theice.com/homepage.jhtml


[1] http://www.marketwatch.com/story/credit-suisse-revises-down-cocoa-price-forecasts-2012-02-29

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