World Shows Signs That It's Losing Its Sweet Tooth -- Update

By Ese Erheriene 

Cocoa consumption fell surprisingly sharply in the final months of 2014, a sign the broader global slowdown is having an effect on even those with a sweet tooth.

Data published Thursday showed the processing of cocoa beans in Europe fell 7.4% on the year in the fourth quarter to 323,061 metric tons. The figure published by the European Cocoa Association was well below market expectations of a decline of between 2% and 5%.

In North America, cocoa grindings slipped 2% in the October-December quarter. North American factories processed 122,886 metric tons of cocoa beans, according to data from the National Confectioners Association, compared with 125,332 tons in the fourth quarter of 2013.

Some analysts had predicted the grindings would rise from the previous year, although estimates ranged from a 4% decrease to a 4% increase.

The drops are seen as a broader indicator of a slump in demand for chocolate, in an environment of weak global growth. Europe is by far the biggest consumer and producer of chocolate, accounting for about 40% of the global production of cocoa liquor, cocoa butter and cocoa powder.

"We interpret the grind data as a sign of a weaker demand environment," said Cargill Inc., one of the world's biggest cocoa processors, in a written response to questions. "We expect this environment to persist in the coming quarter."

The U.S. food giant recently made a big bet on chocolate demand in Asia, investing $100 million to build a cocoa-processing facility in Indonesia, the world's third-largest grower of cocoa beans.

Others have too. In December, Singapore-based trader Olam International Ltd. agreed to buy Archer Daniels Midland Co.'s global cocoa operations for $1.3 billion, adding eight factories with 600,000 metric tons of annual production capacity.

Cargill, which is a member of the ECA and contributes its processing data to the overall regional tally, said Germany was the main driver of the decline in the fourth quarter, with the country's grindings down 14% from a year ago.

"The grind data in Europe should be read in global context, considering also the dynamics in Africa and Asia. We estimate that grind in Africa increased, especially in Ivory Coast, whereas we expect that grind in Asia declined in the fourth quarter, likely in the double-digit range," Cargill said.

Earlier this month, data from Malaysia---another major cocoa producer---showed grindings there were down by roughly 20% on the year. A clearer picture will emerge once data from the Cocoa Association of Asia is published Jan. 21.

The processing data out of Asia is likely to be weak, given Malaysia's report, said Jonathan Parkman, joint head of agriculture at London-based broker Marex Spectron. "Overall, it looks quarter-on-quarter like the global grind is actually going to be down quite significantly on this time last year."

On Thursday, cocoa futures for delivery in March ended down 0.5% at $2,977 a ton on the ICE Futures U.S. exchange.

Leslie Josephs contributed to this article.

Write to Ese Erheriene at [e-mail]

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