Cocoa & Barry Callebaut
The latest El Nino weather cycle has ended. Latin America's farmers are assessing the damage. But cocoa is bucking the trend. Output has rising in Ecuador and Brazil, the region's two largest growers, as well as in countries like Peru, Colombia and the Dominican Republic.
The prices of cocoa has surged over the past six months, thanks largely to the collapse of production in west Africa, where most of it is grown. The value of exports from Latin America has shot up. Cocoa has become one of the region's most valuable exports.
In west Africa growers are paid a fixed price set by their governments. Latin American producers sell at the global market price. Their counterparts in Ivory Coast and Ghana get $2,460 for every tonne of cocoa, even as the global price oscillates around $10,000
The hope is to return Latin America's cocoa industry to its former glory. Brazil was the world's largest grower until its crop was clobbered by fungal disease in the late 1980s and early 1990s. Even if better weather in west Africa prompts cocoa production to bounce back next year, the long-term outlook there is gloomy. Most of its farmers are old and poor. Their national cocoa authorities are inefficiently run and in some cases are almost bankrupt.
Tough European Union regulations on deforestation are due to come into force next year. These will hurt African producers more than Latin American ones, as they exports more to the EU.
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Sluggish African production will probably mean global cocoa prices stay high because so few other countries can grow the crop. The plant is finicky. Where banana yields some 25 tonnes per hectare, cocoa yields about 500kg on average. It needs high levels of humidity and warm overnight temperatures to thrive, with regular rainfall and sunshine. Demand is strong and growing, partly because Asians are eating more chocolate.
Auerbach Grayson and our Switzerland partner ZKB Securities (UK) Ltd host a virtual roadshow with Barry Callebaut Group , a leading global cocoa processor and chocolate manufacturer on July 11 and 12. Please let me know if you want to take a slot!
Our Cote d Ivoire partner HudsonCross Financial, LLC and our Ghana partner IC Financial Planning Ltd commented that a reduction in cocoa production attributed the decrease in warehousing and transit activities, and maritime activities.
Our Indonesia consumer analyst at BRI Danareksa Sekuritas commented PT. Mayora Indah Tbk 's margin will be threatened by higher cocoa price. Our Malaysia consumer analyst at Kenanga Group also shared the view that Nestlé Malaysia has hinted the margin pressure.