Europe's cocoa slowdown highlights global chocolate struggle
The amount of beans ground into butter and powder that's used in confectionery probably fell almost 5% in Europe in the second quarter from the same period in 2024, the average estimate of seven traders, brokers and processors surveyed by Bloomberg show. That would mark a fourth straight quarter of year-on-year declines and the lowest grindings for the period since early in the pandemic.
Cocoa futures have more than doubled in the past two years and touched a record in December on the back of poor harvests, hitting chocolate companies from Barry Callebaut to Nestle. Chocolatiers responded by raising prices for consumers, changing recipes to include more fillers like nuts, and using vegetable oils as a substitute for cocoa butter.
"The sort of price levels we've seen for the last 12 to 15 months have done a lot of damage to consumption,' said Steve Wateridge, head of research at Tropical Research Services (TRS) by Expana. "Volumes are down, but also companies are trying to use less cocoa by substituting with other ingredients.'
The European Cocoa Association will issue second-quarter grinding figures on Thursday, as will associations in Asia and North America. Processing is also expected to fall in those regions, according to the Bloomberg survey. Data published Tuesday already showed a 22% slump in Malaysian grinds.
Cocoa futures plunged as much as 2.8% to $7,661 a ton in New York on Wednesday, after sliding almost 5% on Tuesday.
While prices are down more than a third from their peak, the industry is still in a precarious situation. Even with a better harvest this year, stockpiles remain strained, and West African farmers face long-term challenges, including aging trees and crop disease. Switzerland's Barry Callebaut, which has had difficulties passing on costs to customers, last week cut its sales volume guidance again.
As well as reducing pack sizes and filling bars with alternative ingredients, food companies and grocery stores are more heavily promoting candies over chocolate, said Carl Quash III, global insight manager for snacks at Euromonitor International. There has also been an overall pullback in consumer purchasing, he said.
Weak chocolate demand and the push to reformulate recipes has caused prices of cocoa butter — the moneymaking product — to plunge this year, reducing the incentive to grind. But that's having a knock-on effect of hurting supplies of powder, an ingredient used in everything from baking mixes to protein shakes and which gives products their color and taste, sending prices to near a record.
Grinders have built up butter inventories, signaling "an acceleration in the pace of demand destruction,' said Jonathan Parkman, head of agricultural sales at Marex Group. Wateridge of TRS said it wouldn't be a surprise if butter ends up costing less than powder, a rarity in the market.
Still, the high price of powder probably isn't enough to encourage processors to grind more beans right now.
"At current prices, the amount of working capital that you'd need to stock butter is absurd,' said Laerte Moraes, a former Cargill executive with more than a decade of experience in cocoa trading. "So it could be easier to reduce grinding, which would reduce the supply of powder too.'
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