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Cocoa Grind Margins Will Fall In 2017

March 2, 2017
in Business
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Cocoa processing margins are expected to fall throughout 2017, despite low bean prices and recovering demand, Olam boss Sunny Verghese told investors.

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Mr Verghese said the cocoa processing business of Olam, one of the world’s top ag-traders would be see declining margins, despite cheap cocoa prices.

Olam saw the combined ratio, the ratio of cocoa butter and powder to beans, at the high level of 3.15 at the end of 2016, but those margins are expected to worsen in “touch conditions”.

Decline combined ratio

“So our processing business, because of the very high ratios, did extremely well last year,” Mr Verghese said.

But the ratio is expected to decline through 2017, ending the first quarter of the calendar year at around 2.75.

In the second half of 2017, Mr Verghese expected the combined ratio do decline to around 2.45.

But falling bean prices support margins

Still, this level, which is above those as low as 1.8 reported by other processors in late 2015, was described as “quite healthy”.

“Because bean prices have come down very significantly, the [grind margin] will be quite robust,” Mr Verghese said.

Verghese noted a “bumper crop being harvested in West Africa, but he noted that “a lot of this news is now already in the price”.

Rising demand

And Mr Verghese forecast consumer chocolate consumption to recover, after falling by about 2.5% globally.

“It declined in Europe by 3.1%… because of very high prices,” Mr Verghese said.

“Now the cocoa prices are very low and ingredient prices are very low, we would expect a revival in chocolate consumption in 2017-18 compared to 2015-16 when… cocoa ingredient prices were quite elevated”.

wing to profit

Olam, which has trades in agricultural commodities from palm oil to almonds, reported a post-tax profit of S$102.2m for the last three months of 2016.

This compares to a loss of S$269.4m a year ago.

Olam’s revenues grew by 12.1% year-on-year in the same period, to S$6.1bn.

Olam shares in Singapore edged down 0.5% on the day, to $2.050.

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Tags: Business_Financecocoacocoa processingCocoa processing marginsCocoa productioneuropeFood and drinkFood industryFood Processing - NECOlamPalm oilSingaporeSunny VergheseWest Africa

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