--Cocoa futures fall 4.5% as key indicator of European demand
falls
--Cocoa grindings for the continent fall almost 18% in 2Q from a
year ago
--Market caught by surprise by the size of the decline
By Neena Rai
(Adds closing prices and additional comment)
Cocoa futures plunged 4.5% Thursday as a widely watched industry
indicator signaled that Europe's appetite for chocolate has
declined dramatically.
The continent's second-quarter cocoa-grindings data--which
measure the amount of processed cocoa and are a proxy for chocolate
demand--slumped by almost 18% to 292,551 metric tons from the same
period a year earlier, according to the Brussels-based European
Cocoa Association. That's the sharpest decline in 12 years for a
quarter compared to the previous year's quarter.
"I am absolutely shocked by today's grind numbers," said
Jonathan Parkman, head of agriculture at commodities brokerage
Marex Spectron in London.
"Most people were expecting grind data to come in lower, but in
a range of 5%-7%," he added.
Cocoa futures had rallied recently as investors worried about
hot, dry weather in top-producing region West Africa. Traders said
arrivals at ports had been thin and the beans were of low quality,
sparking concerns about supply tightness.
Traders were "just unwinding their trades and getting out," said
Derek Dobrowolski, owner of Orion Futures Group in Tampa, Fla.
"It's just a bigger drop than (the market) expected."
Some analysts believe that the data point to deeper issues for
the demand picture for cocoa beans, which are the main ingredient
for chocolate. That food typically is perceived as recession-proof
because it is seen as a low-cost luxury.
"The sharpness of the fall is alarming given that the European
Union and Switzerland typically account for 40% of the world's
cocoa grind," said Edward George, head of soft commodity research
at pan-African banking group Ecobank.
"With demand for cocoa and chocolate collapsing in Europe and a
decent global crop expected in 2011-12, cocoa futures will come
under further pressure, " Mr. George said, referring to cocoa's
season, which ends Sept. 30.
Liffe front-month cocoa futures settled 4.2% lower at GBP1,540 a
ton. Front-month cocoa on the ICE Futures U.S. exchange in New York
settled 4.5% lower at $2,184 a ton.
The trend for lower demand in Europe isn't new, but the pace of
the decline is somewhat alarming.
Major international confectionary manufacturers such as Kraft
Foods Inc. (KTF) and Nestle SA (NESN.VX) already have started to
target new markets in Israel and the Middle East as they look for
new pockets of consumption.
Even amid the signs of declining demand, the global cocoa market
still is expected to see a deficit of 43,000 tons in the current
2011-12 crop year, according to a forecast by the International
Cocoa Organization.
But Marex Spectron's Mr. Parkman warned that the extremely
bearish data could likely lead to revisions.
"This is a very big deal for the cocoa market indeed and will
have a material bearing on the supply-demand picture for this
season," he added.
-Alexandra Wexler contributed to this article.
Write to Neena Rai at neena.rai@wsj.com