Cocoa Surges to Highest Since 2011 on Signs of Robust Demand

Feb 12, 2014 2:53 pm ET

Feb. 12 (Bloomberg) -- Cocoa futures rose to a 29-month high as speculation mounted that surging demand will outstrip supplies of the beans used to make chocolate.

Valentine’s Day candy sales in the U.S. will rise 1.9 percent to $1.057 billion from a year earlier, the highest since at least 2009, the Washington-based National Confectioners Association said. Chocolate makes up about 75 percent of the total, according to the group. Global output of cocoa is set to trail demand in the two years that began Oct. 1, according to Macquarie Group Ltd.

Global sales of chocolate confectionery will climb to a record in 2014, according to Euromonitor International Ltd., as candy makers process more beans and adverse weather threatens crops. The commodity has climbed 9.7 percent this year after a 21 percent rally in 2013 that was the second-biggest among 24 raw materials in the Standard & Poor’s GSCI Spot Index. The gains may boost costs for companies including Hershey Co.

“Higher prices in the cocoa market are due to the extent of demand for chocolate,” Hector Galvan, a senior commodity trader at RJO Futures in Chicago, said in a telephone interview. With processors grinding more beans “and with Valentine’s Day this week, it speaks to common sense that we should see more of a need for the product near term.”

Cocoa for May delivery jumped 1.5 percent to settle at $2,971 a metric ton at 12:03 p.m. on ICE Futures U.S. Earlier, the price reached $2,974, the highest for a most-active contract since Sept. 7, 2011.

Grindings Rise

Grinding in North America, Europe and Asia rose in the fourth quarter, separate reports showed.

Global harvests will be 105,000 tons smaller than demand in the year started Oct. 1, followed by a shortfall of 74,000 tons next season, Kona Haque, a London-based agricultural commodities for Macquarie, said on Jan. 22.

Bean deliveries to ports in Ivory Coast, the world’s top grower, were estimated at 16 percent higher from the start of the season on Oct. 1 through Feb. 9 compared with a year earlier, according to KnowledgeCharts, a unit of Commodities Risk Analysis in Bethlehem, Pennsylvania. That’s less than the 36 percent advance as of Jan. 5.

David W. Tacka, the chief financial officer at Hershey, said on a Jan. 30 conference call that gross margins were lower than forecast in the fourth quarter, partly because rising sales prompted the company to buy some raw materials in the spot market, boosting costs.

Indonesia Outlook

A cocoa industry group in Indonesia, the third-biggest grower, last week said that output will probably drop to the lowest in a decade as rains hurt flowering and delay the harvest.

“We still have a great deal of demand, and any shortages will continue to keep the trade on the edge of their seats,” RJO’s Galvan said. “Futures prices still look poised for further moves higher, possibly testing the long-awaited $3,000.”

Ghana is the second-biggest producer.

Hedge funds and other large speculators have quadrupled bullish bets during the past year, with a net-long position of 83,038 futures and options contracts, the most since November, U.S. government data showed on Feb. 7. They have been bullish since June 2012.

--With assistance from Isis Almeida in London. Editors: Patrick McKiernan, Joe Richter