The cocoa market is in the midst of Q2 grind results, and the news from at least two regions is showing little signs of a slowdown. Western Europe was the first region to report results, showing a 2 percent hike in bean grind over Q2 2021. This marks the fifth straight quarter of growth; with 364,081 MT of beans processed, this also sets a new volume record for the quarter.

Season to date, Europe is showing 4.2 percent growth YOY, made more impressive given that this is the top use region. Western European grind is three times larger than that of North America and about 75 percent larger than Asia, so these robust results are suggestive of solid growth globally.

Malaysia also reported its Q2 grind, in step with Europe with 5.7 percent growth at 92,231 MT of beans, a record for any year or quarter. As this grind is a component of the regional grind, Asian Q2 grind might be expected to also show YOY growth.

Meanwhile, consumers are starting to react to the red-hot pace of inflation as demand destruction takes hold. Producers and food companies have been raising prices in response to higher costs for everything from raw ingredients to packaging, labor, and logistics.

As prices on store shelves rise, consumers are starting to make tough choices and change their buying behavior. This is most evident in the recent IRI sales data showing a clear deterioration in the pace of total chocolate sales. While the 52-week (yearly average) remains in positive territory, up a respectable +2.9 percent, the trajectory of the most recent quarter and latest month are more concerning.

Over the past 90 days, growth in total chocolate sales (value) declined to a nominal 0.75 percent, and the most recent month shrank by 3 percent. Clearly, when you move from the long to the short term, the trend is for lower consumption—a deterioration noted by the Co-Vice President of Investor Relations at the Hershey Company in a recent Reuters interview. This is unsurprising given that prices are up over 8 percent over the past twelve months.

Two things are highly likely in the coming months: namely, consumers switching down to private label, cheaper offerings, and shrinkflation by major branded companies seeking to hold the line on cost creep.

Europe quarterly cocoa grind

Source: ECA, McKeany-Flavell
Posted by: Information Services
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