Breaking News
Ad-Free Version. Upgrade your experience. Save up to 40% More details

Cocoa, Chocolate Demand Could Melt On Europe Vaccine Crisis

By (Barani Krishnan/ 17, 2021 08:32
Cocoa, Chocolate Demand Could Melt On Europe Vaccine Crisis
By (Barani Krishnan/   |  Mar 17, 2021 08:32
Saved. See Saved Items.
This article has already been saved in your Saved Items

Nearly 3,000 miles from the Zurich headquarters of Barry Callebaut (SIX:BARN), Ghana’s cocoa traders are anxiously watching how the Swiss chocolatier will respond to the controversy that's playing out across Europe over AstraZeneca’s (NASDAQ:AZN) COVID-19 vaccine. 

The company’s reaction will be important, particularly with regard to how much cocoa beans it grinds for the remainder of this quarter, to turn out its world-famous chocolate and other cocoa-based treats. 

There are other reasons as well for the Ghanaian traders’ anxiety. 

Ghana and neighboring Ivory Coast are the world’s biggest cocoa producers, and a 7% slump in cocoa prices this month alone could deal a blow to the economies of the two African states.

Cocoa Weekly TTM
Cocoa Weekly TTM

On its end, Barry Callebaut is the globe’s largest chocolatier, and Switzerland is the largest market for chocolates after Germany. Both countries are central to Europe’s crisis on COVID-19 immunizations, with Germany leading a group of at least 10 nations within the bloc that have paused the rollout of the AstraZeneca vaccine on reports of illness among some recipients. Switzerland, meanwhile, expressed skepticism about the vaccine even before the controversy, and might further delay its approval.

Put together, too much is at stake for the cocoa and chocolate trade, says Jack Scoville, crop analyst at Chicago’s Price Futures Group. He adds:

“Cocoa futures seem to be factoring in large supply against weaker demand at this time.”

“Demand should improve as COVID vaccinations get administered and as at least some governments around the world invest in fiscal stimulus on their economies.”

To the trade, that might be easier said than done.

COVID-19 is already having a noticeable impact on demand for chocolates, a luxury food product. Especially affected are premium chocolate products that depend on travel (airports and hotels), foodservice and at specialty boutiques, reported last month. 

Godiva To Close All North American Stores

A further indication that all is not well:  Belgian chocolatier Godiva’s decision to close all its 128 retail chocolate stores and cafes in North America by the end of this month.

This despite North American cocoa grinds rising by a surprising 7% in the fourth quarter of 2020 from a year earlier. Jeff Rasinski, analyst at Blommer Chocolate Co, however, explains that the increase may be more of a statistical anomaly than surging demand. To prove his point, North American grinds for all 2020 were down 3.5% from the previous year.

Fourth-quarter cocoa grinds in Europe, the largest chocolate-consuming region, were down 3.1% from a year earlier, while grinds in Asia were down 4.2%. For all of 2020, European grinds fell 3.9% while those in Asia slid 5%.

COVID-19 also has contributed to disarray on the production side of cocoa.

Reuters and others reported that about 100,000 tonnes of cocoa beans, or about a third of monthly deliveries, were backlogged at Ivory Coast cooperatives and farms as the country’s regulatory board suspended registration of beans to reduce stockpiles for export. Some buyers in Europe and the United States asked that deliveries scheduled for the fourth quarter of 2020 be delayed because export demand was lacking.

Adding to the challenges was the $400-per-tonne living income differential, or LID, implemented Oct. 1 (on the 2020-21 crop) by the Ivory Coast and Ghana, which together account for about 60% of global cocoa bean production. The LID, which is added to the sale price of cocoa beans in both countries, is intended to be passed on to poor West African farmers. The sustainability concept has broad support from the world’s major cocoa processors but failed to address the reality of the market—prices tend to fall when demand weakens.

Last month, Reuters reported that the Ivory Coast’s domestic cocoa association, GNI, had petitioned the government’s cocoa regulator to implement reforms to end the dominance of multinationals in handling cocoa exports. GNI said six companies—Barry Callebaut, Cargill, Ecom, Olam (OTC:OLMIY), Sucden and Touton—dominate exports from the Ivory Coast and that major chocolate makers tend to buy exclusively from them at the expense of the companies represented by GNI.

The International Cocoa Organization said last month that anticipation of a production surplus compounded with low levels of demand contributed to the decline seen since the start of this year in cocoa prices. On Wednesday, New York-traded cocoa futures hovered at $2,530 a tonne versus the November close of $3,008.

Ghana Reeling From COVID-19 Impact On Cocoa

In the case of Ghana, cocoa generates over 80% of its export revenues, which come from three primary commodities—gold, crude oil and cocoa exports. It is classified by UNCTAD as commodity dependent, making it vulnerable to sharp drops in commodity prices.

Since the COVID-19 pandemic began, demand for oil dropped precipitously due to a sudden reduction in industrial production, trade, travel, and movement of freight. Prices fell dramatically as a result.

Ghana is the second largest cocoa bean supplier globally, with an estimated 1 million Ghanaian smallholder farmers and their communities depending directly on cocoa for their livelihoods.

Revenues from the newly established, local oil and gas industry have had a profound impact on Ghana’s macroeconomy, even though oil and gas accounted for just 3.8% of Ghana’s GDP in 2018.

The only commodity that did well on Ghana’s main exports was gold. The country is the largest gold producer in Africa. Demand—and the price— of gold increased.

Ghana achieved strong economic growth in terms of real GDP in the 2000s and reached lower middle-income status in November 2010. Middle-income countries generally have a diversified economic structure but Ghana remains heavily dependent on primary commodity exports for foreign exchange earnings.

As a result, the impact of the fall in the price of oil and cocoa has been severe. Ghana’s credit rating was downgraded to B- in September 2020 and the International Monetary Fund approved the disbursement of $1 billion to improve the confidence of the country’s creditors. At the end of 2020, GDP growth was confirmed at 0.9%.

Beth Daley, editor and general manager at The Conversation, wrote in a blog last month about the impact of the pandemic on Ghana and its cocoa trade:

“The COVID-19 crisis hit Ghana and other commodity dependent economies through three mutually reinforcing impact channels: price channel, supply chain channel and financial channel.”

Cocoa Technicals: No Price Recovery On The Charts Yet’s Weekly Technical Indicator firmly calls for a “Strong Sell” on cocoa, with a Fibonacci support first at $2,539, then at $2,518 and later at $2,484.

Should the market, however, reverse trend into a breakout, then Fibonacci resistance will form first at $2,607, then $2,628 and later $2,661.

The pivot point between the two models will be $2,573.

As with all projections, we urge you to follow the calls but temper them with  fundamentals—and moderation—whenever possible.

Disclaimer: Barani Krishnan uses a range of views outside his own to bring diversity to his analysis of any market. For neutrality, he sometimes presents contrarian views and market variables. He does not hold a position in the commodities and securities he writes about.

Cocoa, Chocolate Demand Could Melt On Europe Vaccine Crisis

Related Articles

Cocoa, Chocolate Demand Could Melt On Europe Vaccine Crisis

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at’s discretion.

Write your thoughts here
Are you sure you want to delete this chart?
Post also to:
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Are you sure you want to delete this chart?
Replace the attached chart with a new chart ?
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
Sign up with Email