North American cocoa grinding missed expectations, showing an unexpected decline despite an improving economic situation, but prices got support from signs of strong Asian demand.
Cocoa grindings over the first three months of 2015, were down 2.2% year on year at 118,790 tonnes, where market expectations ranged between a fall of 1%, and a rise of 4%, data from the National Confectioner’s association showed.
Grinding, the processing of cocoa beans into butter and powder, is treated as a proxy for consumer demand.
The figure is down 0.1% from the last three months of 2015, at the lowest level in nearly four years.
Missing the mark
“Market expectation was for a rise,” said Carlos Mera, senior analyst at Rabobank, “based on a very good performance of the US economy”.
Cocoa demand is strongly correlated to the economy, as chocolate demand fluctuates with consumer spending power.
“Clearly the higher cocoa prices in the first quarter squeezed the grinding margins, making cocoa grinding less attractive,” said Commerzbank.
The figure will have taken a hit from the closure of ADM’s Pennsylvania facility, after the agribusiness sold its cocoa arm to Olam.
Mr Mera noted “increased competition worldwide” as grinding volumes in West Africa increase, meaning that the connection between North American grinding and consumer demand is becoming slightly less rigid.
This latest bearish data follows from disappointing European grind data, which showed processing eased down in the first three months of the year, when analysts were expecting an increase of 1-5%.
Malaysian data surprises
But there was supportive news, as cocoa grinding in Malaysia rose 4% year on year, with 47,010 tonnes processing in the first three months of 2016.
Mr Mera called the increase a “surprise,” as Malaysia’s processing business has been losing out to Indonesia, where there are tax incentives for local grinding.
Mr Mera said markets were “now looking forward to seeing grinding from the Asian cocoa association” for signal as to whether the increase in Malaysia grinding reflected higher demand, or jut market share won back from Indonesia.
Cocoa prices in London proved resilient, helped in part by ongoing fears of the state of production in West Africa, where most of the world’s cocoa is produced.
July London cocoa futures rose 0.7%, to trade at £2,225 in morning deals.
(Source – http://www.agrimoney.com/news/cocoa-markets-weigh-high-malaysian-grind-weak-north-american-demand–9497.html)