Cocoa gets cheaper but chocolate makers are still holding back

(Jan 14): Cocoa processing remains under pressure around the world, highlighting continued demand destruction and struggles for the chocolate industry in the wake of record prices a year ago.

The amount of beans ground into butter and powder for confectionery in Europe — the top consuming region — likely fell about 3% in the fourth quarter from a year earlier, the average of 11 analysts and traders surveyed by Bloomberg shows. That would be the lowest for a fourth quarter in 11 years. Grindings probably slid to a 10-year low in Asia while rising slightly in North America.

Cocoa futures hit an all-time high in December 2024 following poor harvests in West Africa. The price shock prompted consumers to cut back on chocolate and candy makers changed recipes to use cheaper substitutes and include more fillers like nuts. While futures have more than halved from the peak, they remain historically expensive and processors are still working through beans bought at much higher levels.

“Demand destruction from elevated prices appears to outweigh seasonal support in the fourth quarter,” keeping grindings lower, said Priyanka Sachdeva, a senior market analyst at brokerage Phillip Nova Pte in Singapore. Asia should see the steepest year-on-year drop as it proves harder to pass on costs and discretionary consumption remains weak, she said.

Most beans processed in the fourth quarter were likely bought before the sharp price slump, meaning the relief has yet to filter through the supply chain. Producers and analysts expect cheaper cocoa to only start feeding through to supermarkets in the second half of this year.

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Cocoa products “are still very expensive” compared to levels four or five years ago which will keep grindings depressed at least until the second quarter, said Vladimir Zientek, a senior trader at StoneX.

While the recent price drop is expected to support a 1.2% recovery in global grindings for the 2025-26 season, demand growth continues to lag a recovery in cocoa output, according to Tropical General Investments Group analyst Nisha Kumari.

Weaker demand and reformulating recipes have hurt prices of cocoa butter, the moneymaking product for grinders. European cocoa processing margins fell below break-even levels in August and then reached the lowest on record in December, according to data from KnowledgeCharts, a unit of Commodity Risk Analysis. At such levels, processors typically curb investment and run rates.

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Underutilised capacity in major processing hubs is also weighing on profitability, said Jonathan Parkman, head of agricultural sales at commodities brokerage Marex Group in London.

“There’s so much spare capacity in the world at the moment,” said Parkman, who estimates a 5% drop in fourth-quarter global grindings. “We’re not looking at a big surplus because we’ve had a big recovery in production. It’s because we’ve had a big crash in final demand and changes in recipes.”

Here are estimates for year-on-year changes in fourth-quarter grindings. Figures for all three regions are scheduled to be released this week. North American processing is seen rising partly due to the addition of two new plants that began reporting in the third quarter.

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