Cocoa processing volumes by European grinders recorded an unexpectedly weak finish to 2016 – although the data provoked only minimal losses in futures, amid hopes for demand improvement this year.
Cocoa processors such as Barry Callebaut, Cargill and Olam ground 339,379 tonnes of beans in the October-to-December period, the European Cocoa Association said.
That represented a 1.3% drop in volumes from the previous quarter – defying market expectations of the data showing an increase of 1.5-2%.
Volumes at that level were also down 0.9% year on year, bringing a soft finish to what had been a decent 2016, with overall grindings for the year, at 1.34m tonnes, up 1.5% from 2015, and at their highest in five years.
Lag effect
However, the reaction on markets was muted, with New York cocoa futures for March standing 0.7% lower at $2,215 a tonne in early deals, and London’s March contact easing 0.5% to £1,789 a tonne, protected somewhat from selling by weakness in the pound, which at one point dropped back below $1.20 to £1.
The relative resilience reflected ideas that cocoa futures are already substantially lower certainly than in the start of the October-to-December quarter, which New York futures entered at $2,761 a tonne on a spot contract basis.
“Prices were a lot higher coming into the quarter, which may have meant there was a bit of a slowdown early on,” said Edward George head of group research at EcoBank, flagging that what industry data had been available had appeared to indicate more promising demand dynamics.
“It would seem that confectioners had a pretty good Christmas.”
Revival occurring?
Indeed, investors may be willing to hold on for data from the first three months of 2017 to get a better gauge of underlying demand.
“With cocoa prices down, you might expect the grind to prove stronger in the first quarter,” Dr George told Agrimoney.com.
Last week, soft commodities analyst Judith Ganes Chase, flagging “rather attractive” profitability dynamics for processors, said that “I still believe that cocoa grind will improve and absorb the big supplies due to favourable processing margins this season compared to recent years”.
Meanwhile, Dr George said there are also ideas that a weak start to 2016-17 for cocoa deliveries at ports in Cote’ d’Ivoire, the top producing country, was in part down to a recovery in demand for the country’s own processing plants, which have for some while been taking market share from Western peers.
“Certainly, there is evidence of a rebound in Cote’ d’Ivoire” after poor volumes for much of 2016, thanks to a weather-hit domestic harvest.
Cote’ d’Ivoire, and some other origin countries, have attempted through measures such as lower exports taxes on processed products than on raw beans to encourage cocoa grindings in-country.
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