Cocoa and sugar market in a weak situation

Kansas City –
It looks like an ugly storm is brewing for candy makers around the world. Recent projections of a global deficit in cocoa and sugar production from 2023 to 2024 have sent sugar prices soaring to a 12-year high and cocoa prices to a 46-year high. And while demand for candy and chocolate products has remained strong in recent years, there are signs that inflation-weary consumers may be curbing demand for increasingly expensive sweet treats. This is a frightening situation for seasonal candy makers, especially as we approach Halloween, Christmas and Valentine’s Day, when consumers traditionally spend billions of dollars on candy.

Extreme weather events are contributing to global shortages of both crops. Torrential rains, flooding and an outbreak of black pod disease have devastated cocoa crops this summer, disrupting harvesting in top producers Ivory Coast and Ghana, pushing the cocoa market into a third consecutive global deficit. Meanwhile, it is supporting the cocoa price that it has been for decades. undulation. On the heels of this soggy summer, El Niño is predicted to bring drier-than-average conditions, which could also have a negative impact on the region’s cocoa crops.

The International Cocoa Organization’s latest forecast for Ghana’s cocoa production in 2022-23 was 750,000 tonnes, but trade sources say disease and restrictions on fertilizer use will push Ghana’s yield to 650,000 tonnes, the lowest in 13 years. It has been suggested that this could be reduced to 1,000,000 tons. Smuggling activities and illegal gold mining on agricultural land were also impacting cocoa production in West Africa, where about 75% of the world’s cocoa beans are produced.

The National Confectionery Association reported on July 20 that North American cocoa beans crushed in the second quarter totaled 102,493 tons, down nearly 12% from the same period last year and below trade expectations. Last week, the European Cocoa Association announced that European cocoa bean crushing was 343,283 tonnes in the second quarter, down 6% from the same quarter in 2022 and also below trade forecasts.

According to data from the Asia Cocoa Association, crushing volumes in Asia fell 6.5% year-on-year to 213,977 tonnes in the second quarter. Second-quarter recoveries in Asia and Europe were the lowest since 2020, while North America’s recoveries were the weakest in more than a decade. Grinds typically indicate demand for cocoa and chocolate, and low grinds suggest that other inflationary pressures may be pushing consumers away from chocolate.

Similar to cocoa grinds, domestic sugar shipments are an indicator of consumer demand, and recent reports suggest demand is declining. In its World Agricultural Supply and Demand Estimates Report, the U.S. Department of Agriculture estimates domestic edible sugar deliveries for 2022-23 and 2023-24 from May to September at 175,000 tons and 120,000 tons, respectively. Revised downward by 5,000 tons.

“Edible shipments from domestic processors/refiners are down approximately 1% year-over-year,” the USDA said. “Beet shipments continue to lag around 6.5% to 7% year-on-year, while sugarcane shipments mainly compensate for this, but have been at a declining rate since May.”

Trade sources have been pointing out delays in domestic deliveries for several months. Sales of finished foods are thought to have slowed over the year as consumers cut back on discretionary spending due to rising food prices. This trend has created a glut of spot sugar available in the U.S. market, but that extra sugar does not appear to impact historically strong prices.

Some beet processors were still waiting to see what the final crop outlook would be and how much sugar they could provide before considering price changes. Although the sugar beet crop was generally in good shape, sugarcane refiners watched as Louisiana’s devastating drought reduced sugarcane yields. As of September 17, the USDA state office had lowered Louisiana’s sugarcane crop rating from 1% good and 26% good to 21%, marking the ninth consecutive downgrade in the previous week’s sugarcane crop assessment. That’s far short of the near-record harvest the state produced last year, which helped fuel high sugar prices.

The International Sugar Organization recently predicted that the global sugar market will be in the red by 2.12 million tons in 2023-24, as a drier El Niño weather pattern has affected major sugar producing countries, causing global sugar production to decline by 1.2% year-on-year. The prediction also led to support. in Southeast Asia, India, and Australia.

Thailand, which was the world’s second-largest sugar exporter in 2022-23, may only be able to export around 1.7 million tonnes of sugar in 2023-24, the lowest export volume in 15 years. One analyst predicts that.

India, the world’s third-largest sugar exporter in 2022-23, expects sugarcane yields and sugar production to decline due to a significant drop in rainfall during this year’s monsoon season, resulting in lower sugar exports in 2023-24. was expected to be banned from October 1st. India’s August rainfall was the lowest in more than 100 years, according to weather reports.

These global sugar and cocoa shortages are likely to continue to support high prices, and candy makers hope that consumers’ deep-rooted love for sweets will continue to resiliently absorb higher costs. . Mondelez International and The Hershey Company recently raised their growth and profit outlooks, anticipating stronger consumer demand despite higher prices. However, sales volumes for both companies have decreased compared to the previous year. Barry Callebaut, the world’s largest chocolate maker, said sales volumes fell nearly 3% in the first nine months of the fiscal year ended May 31 due to high prices.