Cocoa, sugar markets in a not-so-sweet situation

KANSAS CITY — An ugly storm appears to be brewing for candymakers worldwide. Recent forecasts for global deficits in both 2023-24 cocoa and sugar production have sent sugar prices spiking to 12-year highs and cocoa prices soaring to 46-year highs. And while demand for candy and chocolate products has remained strong in recent years, there are indications inflation-weary consumers may be curbing their demand for increasingly expensive sweet treats. It’s a scary situation for seasonally dependent candy manufacturers, especially as Halloween, Christmas and Valentine’s Day approach when consumers traditionally spend several billion dollars on candy.

Extreme weather events have been a driving factor behind the global shortfalls for both crops. Torrential rains, flooding and the emergence of black pod fungal disease have ravaged cocoa bean crops and disrupted harvest activities in top-producers Ivory Coast and Ghana this summer, setting the cocoa market up for its third consecutive global deficit while supporting cocoa’s multi-decade price surge. On the heels of this soaked summer looms an El Niño weather pattern that is expected to bring drier-than-normal conditions that may also negatively impact the region’s cocoa crop.   

The International Cocoa Organization’s most recent forecast for Ghana’s 2022-23 cocoa production was 750,000 tonnes, but trade sources have indicated Ghana’s crop may fall to 650,000 tonnes, a 13-year low, due to disease and limited use of fertilizer. Smuggling activities and illegal gold mining on farmlands also were affecting cocoa production in West Africa where nearly 75% of the world’s cocoa beans are produced.

The National Confectioners Association on July 20 reported second-quarter North American cocoa bean grind at 102,493 tonnes, down nearly 12% from a year earlier and below trade expectations. In the week prior, the European Cocoa Association said second-quarter European cocoa bean grind was at 343,283 tonnes, down 6% from the same quarter in 2022, and also below trade expectations.

Data from the Cocoa Association of Asia indicated Asia’s second-quarter grind had declined 6.5% year-over-year to 213,977 tonnes. Asian and European second-quarter grind was the lowest since 2020 and North American grind was the lowest in more than a decade. Grind typically is an indication of cocoa and chocolate demand, with the lower grind suggesting consumers may be pulling back from chocolate amid other inflationary pressures.

Like cocoa grind, domestic deliveries of sugar are an indicator of consumer demand, and recent reports suggest demand is waning. The US Department of Agriculture in its World Agricultural Supply and Demand Estimates report lowered both its forecast for 2022-23 and 2023-24 sugar deliveries for domestic food use by 175,000 tons and 125,000 tons, respectively, from May to September.

“Deliveries for human consumption from domestic processors/refiners are running about 1% lower year-over-year,” the USDA said. “Beet deliveries continue to lag the previous year by about 6.5% to 7% while cane deliveries have been largely compensating, but at a declining rate since May.”

Slow domestic deliveries have been indicated by trade sources for several months. Ideas were sales volumes of finished food products had slowed over the year as consumers pulled back on discretionary spending due to rising food prices. The trend resulted in a surplus supply of spot sugar available on the US market, but the extra sugar did not appear to impact prices that remain historically strong.   

Some beet processors were still waiting to see what their final crop prospects will be to see how much sugar they can offer before considering any price changes. Sugar beet crops overall were in mostly good condition, but cane refiners were closely watching a devastating drought diminish the sugar cane crop in Louisiana. As of Sept. 17, the USDA state office lowered Louisiana’s sugar cane crop to 21% good, down from 1% excellent and 26% good in the previous week, and the ninth consecutive time the state’s cane crop rating had been lowered. It was far from the near-record crop the state produced last year and provided support to strong sugar prices.

Support also came after the International Sugar Organization recently projected a 2.12 million tonne deficit for the 2023-24 global sugar market due to world sugar production falling 1.2% year-over-year as the dry-biased El Niño weather pattern impacted major sugar producing countries in Southeast Asia, India and Australia.

Thailand, the world’s second-largest sugar-exporter in 2022-23, may only have around 1.7 million tons of sugar to export in 2023-24, the country’s smallest export volume in 15 years, one analyst forecast.

India, the third-largest global sugar-exporter in 2022-23, was expected to ban 2023-24 sugar exports beginning Oct. 1 after significantly lower rainfall during this year’s monsoon season was expected to cut the country’s cane yield and sugar production. Meteorological reports indicated August rainfall in India was the lowest in more than a century.

These global sugar and cocoa deficits are likely to continue supporting high prices, and candy makers have been hoping consumers’ perennial affection for sweets will continue to resiliently absorb the inflated costs. Mondelez International and The Hershey Co. recently raised their growth and profit forecasts, expecting consumer demand to strengthen despite the high prices. But both companies have seen year-over-year sales volume diminish. Barry Callebaut, the world’s biggest chocolate maker, said high prices have led to its sales volume falling nearly 3% in the first nine months of the fiscal year ended May 31.