Cocoa plunged by the most ever, slumping as much as 27% in just two days

https://theedgemalaysia.com/node/709963

Cocoa plunges most ever with trader exodus sparking huge moves

By Mumbi Gitau / Bloomberg

30 Apr 2024

Despite the recent pullback, the price of cocoa has roughly doubled since the start of the year.

(April 30): Cocoa plunged by the most ever, slumping as much as 27% in just two days, with price swings becoming more extreme as fewer investors and companies can afford to maintain trading positions.

Futures slid as much as 13% in New York on Tuesday (April 30) before paring some of the loss after tumbling the previous day by the most in data going back to 1960. The retreat marks a stark turnaround from earlier this month, when prices soared to a record above US$11,000 (RM52,497.09) a tonne due to a historic supply crunch, raising the cost of making chocolate.

Even with the recent pullback to the lowest in a month, cocoa has still roughly doubled since the start of the year. The rally made it more expensive to keep positions and prompted investors to close out trades, which has drained liquidity and made the market more vulnerable to large price swings.

Cocoa’s rally had made it more expensive than copper, and the big question was how far prices could reach. Pierre Andurand, a hedge-fund manager best known for his oil wagers, bet on higher cocoa prices ahead of the massive recent surge. He forecast futures to break US$20,000 this year.

The magnitude of the recent drop was a surprise, though the declines could prove brief because the fundamental picture hasn’t changed, said Fuad Mohammed Abubakar, head of Ghana Cocoa Marketing Company UK Ltd, a subsidiary of the country’s regulator.

“The market action in the last three days goes to show the fall is always easier and faster than the climb,” he said.

Harvests in West Africa have been battered by crop disease and poor weather this season, putting the world on track for a third straight supply deficit and forcing both Ivory Coast and Ghana to roll forward supply contracts. The amount paid to farmers there is also well below the global market prices, making growers less able to invest in plantations and boost production.

Lower prices would offer some relief to chocolate makers, who have seen costs soar and have been scouring the world for cocoa beans. Shares of Barry Callebaut AG, which supplies some of the biggest consumer chocolate brands, climbed as much as 6.6% on Tuesday.

Maintaining Positions

Cocoa’s advance this year has meant traders — including those who’ve hedged against physical holdings — have had to come up with more money to pay margin calls, which work as an insurance policy to cover potential losses. When they can’t do that, they’re forced to close out positions. That has helped push down open interest, or the number of outstanding contracts, curbing liquidity.

Looking forward, the end of the El Nino weather phenomenon could help harvests recover next year, Marijn Moesbergen, sourcing lead at Cargill Inc, said at the recent World Cocoa Conference in Brussels. Prices may have overshot and the market needs to find a new equilibrium between supply and demand, he said.

Prices:

- The most-active cocoa contract was last down 5.9% at $8,405 in New York. London cocoa futures slid 8.4%.

- In other soft commodities, arabica coffee declined 1.5% and raw sugar fell 0.9%.

The Demand for Chocolate Slumps

European cocoa grindings-a key ingredient in the production of chocolate-fell by 18% in the second quarter of 2012, the largest quarterly drop for 12 years amid worsening consumer demand in Europe and Asia. Dow Jones's Neena Rai reports. 7/12/2012 8:06:52 AM2:36

Cocoa crunch

Cocoa crunch


Written by Chong Jin Hun
Monday, 07 March 2011 11:45


KUALA LUMPUR: Having a cup of nicely brewed coffee and a chocolate brownie for your afternoon tea break could soon be an expensive affair should the price of coffee and cocoa beans continue to rise.

Costlier coffee and cocoa beans are also eating into the profit margins of the food and beverage (F&B) manufacturers beyond putting a squeeze on consumers’ wallets.

Against such a backdrop, some of the consumer stocks on Bursa Malaysia — long considered sound defensive picks — are becoming less safe due to the looming margin squeeze and weaker demand as their products get more expensive.

Already, these companies, including names like Nestle (M) Bhd, Cocoaland Holdings Bhd, London Biscuits Bhd and Apollo Food Holdings Bhd, have reported weaker quarterly results due to higher input costs.

Cocoa prices rose to a 32-year high at US$3,706 (RM11,230) a tonne last week due to the ongoing political crisis in Ivory Coast, which produces 60% of the world’s output. The commodity has rebounded 46% from a low of US$2,543 a tonne in June, 2009.

Meanwhile, supply fears pushed the price of coffee to a high of US$2.74 (RM8.30) a pound in February, more than double the low of US$1.27 a pound seen in March 2009. Concerns over poor harvests in coffee producing countries like Mexico, Colombia and Kenya have been exerting upward pressure on prices.

Nestle’s net profit for 4QFY10 ended Dec 31, plunged 54% to RM39.3 million from RM86.2 million in the corresponding period a year ago, despite higher revenue of RM963.9 million versus RM950.6 million. The group attributes the profit contraction to the sharp increase in cocoa and milk prices that dented its gross margin.

Nestle says the average price of cocoa powder more than doubled in 2010 compared with the previous year, while the price of skimmed milk powder rose about 20%.

“The sharp increase in global commodity prices and the government’s gradual reduction in food and fuel subsidies, which puts pressure on the group’s input costs, remains a concern.

“The group will continue to closely monitor the development of commodity prices, evaluate and adjust its pricing policy accordingly,” Nestle said in its results briefing.

Where possible, Nestle says it will use operational efficiencies and cost-saving measures to avoid passing on the price increases to consumers.

To mitigate the cost pressures, Nestle raised prices for some of its products last month. The price of Milo Fuze and powder products have gone up by between 5% and 6%, while the price for the Nescafe three-in-one product is up by 4%.

Nestlé is seen as a reference point when it comes to raising prices, analysts and industry observers say. Other food manufacturers are expected to follow in Nestle’s footsteps.

Tai Chun Wah, Cocoaland’s group accountant, says rising cocoa bean prices will crimp the company’s bottom line in the short term.

Tai says the manufacturer, which produces chocolate confectioneries, will pass the additional cost to consumers within six months.

“In the short term, the higher inputs costs will reduce profits,” Tai says.

Cocoaland’s net profit halved to RM9.52 million for FY2010 ended Dec 31. In its latest quarterly result announcement, Cocoaland warned that it faces greater challenges ahead in anticipation of higher raw material prices and intense competition in domestic and overseas markets.

Tai believes that raising selling prices is an emerging trend as big players like Nestle have started to do so. “Consumers have to accept it,” he says.

He adds that he expects cocoa prices to rise further due to supply concerns.

London Biscuits said in its results announcement for 2Q ended Dec 31, that it expects its financial year ending June 30, will be another challenging year. The confectioner reported a 76% plunge in net profit to RM1.08 million for the quarter.

Apollo, meanwhile, saw its net profit decline 31% to RM3.95 million in 2Q2010 ended Oct 31. It attributes this to higher operating costs and lower gains from the disposal of available-for-sale financial assets.

“Despite the improvement in the global and domestic economy, the group’s operating environment is expected to remain challenging and competitive,” the company said in notes accompanying its quarterly numbers.

While the F&B companies are feeling the bite of high commodity prices, there is a liver lining for some, as Malaysia is a producer of cocoa, though not a major one.

Malaysia produced 18,152 tonnes of cocoa beans in 2009, according to the Malaysia Cocoa Board. Of this amount, 13,213 tonnes came from Peninsular Malaysia, 3,688 tonnes from Sabah and 1,251 tonnes from Sarawak. Production is estimated to have fallen to 15,654 tonnes in 2010.

Malaysia’s cocoa bean production is mostly undertaken by smallholders, rather than large plantation players, and these smallholders will benefit from higher prices.

The country’s cocoa production has declined greatly as low prices in the past prompted farmers to switch to more lucrative crops. In 1990, for instance, the country produced 247,000 tonnes -- a staggering 13.6 times more than 2009’s output.

Guan Chong Bhd, a cocoa-ingredient producer, is riding the rally in cocoa prices. It is sitting on a large inventory of cocoa beans that has appreciated in value due to rising prices. The company’s inventories totalled RM154.92 million as at end-2010

“We can buy high and sell high,” says Brandon Tay Hoe Lian, Guan Chong’s managing director and CEO. He adds that the company can always pass on additional costs to customers.

For FY2010 ended Dec 31, Guan Chong’s net profit soared seven-fold to RM100 million as revenue rose 83% to RM1.17 billion.

The company says its financials were also helped by foreign exchange gains due to the strengthening ringgit. The firm also booked gains from commodity futures contracts, and foreign exchange derivatives.

It is also worth watching companies like MBf Holdings Bhd, which operates coffee and cocoa plantations in Papua New Guinea.

MBf Holdings’ website indicates that the company has a 1,100ha coffee plantation and 2,100ha of land for tea cultivation in Papua New Guinea. Details about its cocoa operations were however not specified.

Agriculture operations in Papua New Guinea accounted for 11% of MBf’s revenue in the financial year ended Dec 31, 2010, its latest quarterly results showed.


This article appeared in The Edge Financial Daily, March 7, 2011.

Cocoa windfall for Guan Chong

Cocoa windfall for Guan Chong
Tags: Cocoa prices | Guan Chong Bhd

Written by Daniel Khoo
Thursday, 27 January 2011 11:53


KUALA LUMPUR: The recent sharp rise in cocoa prices has brought a windfall for Guan Chong Bhd, which had earlier stocked up on the soft commodity at substantially lower prices.

The company’s profit margin has already widened substantially to 6.7% for the nine-month period ended September 30, 2010, from 1.8% in the previous corresponding period.

For nine-month period, Guan Chong’s revenue nearly doubled to RM836.3 million from RM424.8 million. Net profit soared more than seven-fold to RM56.17 million from RM7.66 million in the same period a year ago.

“We try to sustain profit margins of about 5% to 7% and sustain that no matter how high or low cocoa prices might go ” Guan Chong CEO Brandon Tay told The Edge Financial Daily yesterday.

Johor Baru-based Guan Chong is an upstream cocoa processor that converts raw cocoa beans into semi-complete ingredients like cocoa butter, cocoa cake and cocoa powder.

The company obtains its cocoa bean supply from Indonesia, Papua New Guinea, Ghana, Ivory Coast and Nigeria.

Tay said high cocoa prices are good for the company since it could always pass on the cost increase to its customers by quoting higher selling prices.

“Our prospects are good moving forward. Sales have indeed been great,” Tay added.

“You see, whether at high or low prices, the big boys have to buy cocoa from middleman like us. Once we use our supplies, we immediately hedge it on the futures market to replenish the stock for the coming already kept this [increasing raw material costs] in mind when making their orders,” he explains.

Cocoa prices shot up early this month due to political tension in Ivory Coast, where a disputed election has left the country with two rival presidents.

A one-month ban on cocoa exports from Ivory Coast, the world’s biggest cocoa producer, has added more upward pressure on prices. Cocoa prices rose to US$3,366 a tonne yesterday, from US$2,745 in late August last year.

Commodity analysts quoted by news agencies say that prices might even soar to the US$3700-level, the highest since 1979, should the supply of cocoa get even tighter.

On Bursa Malaysia, Guan Chong’s share price has climbed in tandem with the rise of cocoa prices. The stock surged to a record high of RM2.72 yesterday, up 51% from RM1.80 in mid-December. Analysts say the company’s improved financial performance could be attributed to the large stocks of raw cocoa beans it keeps in storage, which is now worth much more based on current prices.

Its balance sheet as at Sept 30, 2010, shows the company’s inventory has been reduced to RM165.29 million from RM229.98 million a year ago. According to Tay, 80% of the company’s inventory is in raw material.

In fact, escalating cocoa prices and its high inventory level have come in handy for the company in obtaining loans. Its gearing is currently at 1.21 times, based on long- and short-term borrowings at RM180.52 million and total equity of RM149.11 million.

“I know some analysts may not like it, but our company can afford to increase our gearing because our inventory mostly consists of cocoa beans,” Tay says.

Earlier, Tay had indiated that Guan Chong intended to sell some of its raw material stock to fund its second bean-grinding factory, on Batam Island, Indonesia.

“We have completed the first phase of the factory. If we run full capacity in the first phase, it will increase our capacity to 130,000 tonnes from 80,000 presently,” Tay says.

“We will complete the second phase of the factory by the end of this year. The second phase of the factory will add 60,000 tonnes to our capacity,” he adds.

Despite the threat of cocoa bean shortage due to the political unrest in Ivory Coast, Tay remains confident that it will not be a major problem for the company.

“Well, you know, every year they fight. They will eventually find a way to bring out the beans. They will somehow smuggle out from Ivory Coast into neighbouring countries such as Ghana, which will then delive to the rest of the world,” says Tay.

“So, we actually don’t really have to worry about the supply of cocoa beans,” he adds.


This article appeared in The Edge Financial Daily, January 27, 2011.

Price of hot chocolate to soar

Price of hot chocolate to soar
Just when it seemed the only respite from the bad weather was curling up in front of the fire with a mug of hot chocolate, there is more bad news.

Photo: Philip Hollis

6:55AM GMT 21 Dec 2010

25 Comments

The price of hot chocolate is to soar after the wholesale cost of cocoa powder jumped by 32 per cent over the last year.

The rise has been blamed on failing crops earlier in the year and disruption from suppliers in Ivory Coast, whose traders suffered following a chaotic general election earlier. Specualtors have been adding to the problem by stocking up.

Cocoa powder as risen to £3,000 a ton a much bigger rise than cocoa butter which is used to make chocolate bars.

The figures were disclosed by commodities analyst Mintec for The Grocer magazine.

'The price of chocolate drinks is coming under pressure and cocoa powder and sugar become more expensive on the world markets," a spokesman for Mintec.

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'Over the past few months the price of cocoa powder has been steadily increasing and sugar prices have followed suit propelling the price of chocolate raw materials to record levels.'

It added: 'As chocolate consumption is increasing faster than production, prices for raw materials might not ease quickly.'

http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8215194/Price-of-hot-chocolate-to-soar.html

Cocoaland’s new product line to be postponed

Cocoaland’s new product line to be postponed
Posted on November 23, 2010, Tuesday

KUCHING: Candymaker, Cocoaland Holdings Bhd (Cocoaland) postponed its proposed Cocopie and Gummy line of products as it was still scouring for a new plant to accommodate the additional lines.

In its research report, TA Securities Holdings Bhd (TA Securities) said the lines were expected to be completed and up-and-running in a year’s time.

On another note, Cocoaland was still in the trial-testing stage for original equipment manufacturers (OEMs) with big multinational corporations (MNCs) and thus, none would be reflected in its earnings this year.

In addition, the company which had begun marketing its own brands Fruit Ten and Cha in the market had been met with mundane response.

This was probably expected, as Cocoaland’s brand name was still relatively new in the Fraser and Neave Holdings Bhd (F&N) and Yeo Hiap Seng (M) Bhd (Yeo’s) dominated market, according to the research house.

It also mentioned that product and brand recognition traditionally took two to three years, but with Cocoaland’s synergistic relationship with F&N, it might allow Cocoaland’s products a shorter time to achieve that milestone thanks to F&N’s wide distribution network.

Furthermore, the research firm also commented on the company’s skyrocketing costs. The average price of sugar had increased more than 30 per cent year-to-date, cocoa powder by more than 20 per cent, packaging by more than 10 per cent and glucose by more than 15 per cent.

This was only partially mitigated by the weaker US dollar since 40 per cent of its sales were denominated in US dollars. TA Securities stated that trends were moving towards passing the costs to the consumers in the form of increasing selling prices by five per cent to 10 per cent.

Given the current circumstances, the research house expected net profit to be less than RM10 million on the back of weak first half of the year results in addition to operating losses of its beverage plant.

It pegged Cocoaland’s target price at RM2.14 per share based on financial year 2011 price earnings ratio of 16 times.

http://www.theborneopost.com/?p=76611

British financier Anthony Ward behind £658m cocoa trade, buying all Europe's cocoa

Mystery trader buys all Europe's cocoa
Even Willy Wonka might struggle to use this much chocolate. Yesterday, somebody bought 241,000 tonnes of cocoa beans.

Jonathan Sibun and Harry Wallop
Published: 7:00AM BST 17 Jul 2010

34 Comments

Cocoa futures for July delivery jumped 1.5pc on the Liffe exchange to more than £2,588 this week Photo: Reuters

The purchase was enough to move the entire global cocoa market, sending the price to the highest level since 1977, and triggering rumours and intrigue in the City.

It is unclear which person, or group of traders, was behind the deal, but it was the largest single cocoa trade for 14 years.

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  British financier Anthony Ward behind £658m cocoa trade

The cocoa beans, which are sitting in warehouses either in The Netherlands, Hamburg, or closer to home in London, Liverpool or Humberside is equivalent to the entire supply of the commodity in Europe, and would fill more than five Titanics. They are worth £658 million.

Analysts said it was very unlikely that a chocolate company, such as Nestle or Kraft, or even their suppliers, would buy such a huge order in one go and that is was probable that one or a number of speculators, possibly hedge funds, had attempted to corner the market. By doing this, they would have control of the entire supply in Europe, forcing the price yet higher.

Eugen Weinberg, an analyst with Commerzbank, said: “For one buyer it would likely be a little bit too large. It would be a crazy number. That said, if you’re cornering the market ...”

“If it looks like cornering, feels like cornering and the price difference between Europe and the US is so large, it probably is cornering.”

“There is some play taking place. No one really knows what is going on.”

Andreas Christiansen, president of the German Cocoa Trade Association, said the “hefty” price move was “a mirror of what can be done if people control the physical stock”.

Cocoa prices, which had been on the rise this year, rose 0.7 per cent yesterday, to £2,732 per metric ton. By contrast, cocoa being traded on the US exchange fell.

This is the highest price for cocoa in Europe since 1977, and comes after a series of weak harvests in Ghana and the Ivory Coast, the main areas where the crop is grown. Fears of floods in the Ivory Coast have sent prices even higher, as speculators have bet on another poor harvest, and a shortage of supply.

At the same time demand is on the increase, especially as China and India develop an ever sweeter tooth.

Cocoa prices have more than doubled since 2007, forcing chocolate makers to raise prices and in some cases to change recipes to use less cocoa.

Laurent Pipitone, senior statistician at the International Cocoa Organisation in London, said: “In the past two years, all companies have increased prices."

There are fears that the extraordinary activity on the commodity markets will filter down to higher prices on the shop shelves for the nation's favourite chocolate bars, even milk chocolate, which has only 25 per cent cocoa content.

The trade took place on the London International Financial Futures and Options Exchange (Liffe), a market which trades contracts in commodities such as corn, wheat, sugar, coffee and cocoa.

Most of these contracts are "options" or "futures" giving a trader the right to buy these commodities at a certain price at a certain time in the future. What made yesterday's trade so unusual was that the mystery buyer or buyers took physical delivery of the commodity.

The beans will be stored in one of Liffe's warehouses in Amsterdam, Antwerp, Bremen, Felixstowe, Hamburg, Humberside, Le Havre, Liverpool, London, Rotterdam, or Teesside.

There have been mounting worries that speculators have been distorting the cocoa market in recent weeks, with brokers writing a letter of protest to Liffe earlier this month.

Barbara Crowther, a spokesman at the Fairtrade Foundation, said that no farmers in West Africa would benefit from the higher prices. She said: "This speculation only serves to increase volatility and uncertainty. Part of the problems in rent years have been the lack of investment in improving cocoa farms. But the farmers have already been paid a set price – none of this money will filter down to them."

Update: British financier Anthony Ward behind £658m cocoa trade


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British financier Anthony Ward behind £658m cocoa trade
A British financier is behind a £658 million cocoa trade which single-handedly moved the global cocoa market.

By Laura Roberts
Published: 1:55PM BST 18 Jul 2010

Anthony Ward, 50, bought 241,000 tons of cocoa beans and now owns enough to manufacture 5.3 billion quarter-pound chocolate bars.

Mr Ward, who is worth around £36 million, holds so much of the market he could force manufacturers to raise the price of Britain's favourite chocolate bars.

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The transaction, the largest single cocoa trade in 14 years, was carried out last Friday by Armajaro Holdings, a hedge fund co-founded by Mr Ward.

The businessman began his career as a motorcycle dispatch rider before becoming a commodities trader specialising in cocoa and coffee.

The former Chairman of the European Cocoa Association has amassed up to 15 per cent of the word's cocoa stocks in the last ten years.

Mr Ward, who has an annual director's salary of £3.4 million, lives in Mayfair in London with his wife Carolyn. Outside of work he is known to be a passionate rally driver and lover of fine food and wines.

The cocoa beans from his latest trade are expected to be kept in warehouses in The Netherlands, Hamburg, London, Liverpool or Humberside and are the equivalent of the entire supply of the commodity in Europe.

Cocoa prices rose by 0.7 per cent as a result of the trade to £2,732 per metric tonne – the highest price for cocoa in Europe since 1977. It follows a series of weak harvests in Ghana and the Ivory Coast, the main areas where the crop is grown.

In 2002 Mr Ward made £40 million in two months after making a similar deal. He bought 204,000 tones of cocoa when West Africa was experiencing poor harvests and political instability in the equatorial area.

He then watched the price of cocoa increase from £1,400 a ton to £1,600 a ton.

Cocoa prices have more than doubled since 2007, following increased demand particularly from China and India, forcing chocolate makers to raise prices and in some cases to change recipes to use less cocoa.

Mr Ward was not available for comment.