World Cocoa and CBE markets

Presentation to Global Shea 2013 By Richard Truscott, LMC International,

Oxford, UK www.lmc.co.uk

Outline

• The use of CBEs

• Chocolate and CBE demand trends

• Cocoa production

• Outlook

Background: The use of CBEs

• Around 90-95% of exported shea is used in the production of cocoa butter equivalents (CBEs).

• These are used as a replacement for cocoa butter in chocolate and are typically a blend of an exotic fat (shea, sal, illipe, etc) and palm mid-fraction (a product of palm oil).

• CBEs are used either to:

• Reduce cost (CBEs are cheaper than cocoa butter); or

• Improve functionality (i.e. changing the melting point, hardness and reducing bloom).

• The outlook for shea (and CBEs) is closely linked to trends in the chocolate industry and cocoa market.

• Demand for chocolate confectionery • Legislation (chocolate is one of the few products that

has legal definition. This varies between markets) • Consumer preferences for products containing CBEs • Price

Demand for CBEs depends upon:

Chocolate product consumption is growing at around 2% per annum. Recession hit demand in 2009. Growth has resumed at a slower pace. There are different trends between emerging and mature markets.

0

1

2

3

4

5

6

7

8

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

mn

tonn

es

Mature market consumption fell in 2011/12 but demand continued to rise strongly in the emerging markets

-3% -2% -1% 0% 1% 2% 3% 4% 5% 6%

W Europe

C&E Europe

US

Brazil

Asia/Pacific

Change in consumption

This trend follows that of recent years, where the emerging markets have led growth

90

100

110

120

130

140

150

160

2000/01 2002/03 2004/05 2006/07 2008/09 2010/11

cons

umpt

ion

grow

th in

dex

(200

0/01

=100

)

Advanced Emerging

Despite this emerging markets cocoa per capita consumption levels are still low, pointing towards future growth. Mature markets are close to saturation

0

1

2

3

4

5

6

IndiaChinaIndonesiaN

igeriaThailandTurkeyPhilippinesSouth AfricaVenezuelaKoreaU

kraineM

exicoM

alaysiaW

ORLD

ArgentinaColom

biaChileRom

aniaBrazilJapanSlovakiaRussiaItalyPolandH

ungaryPortugalCzechSpainSw

edenN

etherlandsU

SACanadaN

ew Zealand

Greece

FinlandAustraliaSloveniaD

enmark

FranceU

KIrelandAustriaG

ermany

Norw

aySw

itzerlandBelgium

Per c

apita

cons

umpt

ion

(kg

per a

nnum

)

Income is the key driver of increased consumption (along with a growing middle class and increased urbanisation)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0 10,000 20,000 30,000 40,000 50,000 60,000

GDP per Capita

Per c

apita

cons

umpt

ion

IndiaRussia

Norway

Korea

Germany

Czech Rep

UK

US

Slovenia

China

Australia

The fastest growth is in the BRIC and ASEAN countries. These are also important markets for CBEs.

0% 2% 4% 6% 8% 10%

Russia

Brazil

China

India

Indonesia

Korea

Annual growth %

0

50

100

150

200

250

300

350

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

'000

tonn

es

China India Indonesia Korea Thailand Turkey Other emerging Asia

Cocoa consumption in emerging Asian markets has doubled in the last decade. Much of this is compound chocolate, ice cream, cakes, drinks, etc.

The growth is largely of cocoa powder based products

• This is as powder based products are:

• Cheaper than chocolate

• Have a lighter taste than chocolate (important for new

consumers)

• Do not melt in hot climates

0% 1% 2% 3% 4% 5% 6% 7%

Flavoured milkdrinks

CompoundChocolate

Tobacco

Ice cream

Chocolate tablets

Chocolate bars

Forecast growth

This points towards higher growth for powder based products in the future

Source: Barry Callebaut

Developed market trends can be seen from German data. Consumption has consistently fallen since 2009

-4.0% -3.5% -3.0% -2.5% -2.0% -1.5% -1.0% -0.5% 0.0% 0.5%

Filled Bars

Pralines

Solid Bars

Total

Change in Consumption2009 2010 2011 2012

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

Jul-12

Jan-13

butter powder

As demand for powder has increased so have powder prices relative to butter. The relationship between prices is constantly evolving. Butter ratios have risen strongly in the last 6 mths.

US ratios

Shea butter prices have remained stable despite continuing fall in cocoa butter prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

trad

e un

it va

lue

($ p

er to

nne)

cocoa beans cocoa butter shea butter cocoa powder

It is cocoa butter prices that determine shea butter prices, not cocoa prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

coco

a bu

tter

exp

ort u

nit v

alue

($/to

nne)

0

500

1,000

1,500

2,000

2,500

3,000

3,500 shea butter import unit value ($/tonne)

cocoa butter shea butter

Note: 2012 trade data not complete. Values calculated from available months trade data

• Cocoa Production & Price

Cocoa prices rose again in 2012, but have fallen recently

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

$ pe

r mt (

ICE)

and

£ p

er m

t (LI

FFE)

ICE 2nd Position LIFFE 2nd Position

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Prod

uctio

n ('0

00 to

nnes

)

0

100

200

300

400

500

600

700

Yield (kg/hectare)

production Yield

Côte d’Ivoire production has remained strong despite falling from 2010/11 record

• Ageing trees, disease and low fertiliser use mean that yields remain low

• While the fixed price gives stability, the level is still low compared to other crops e.g. rubber, oil palm

• Cocoa farming is not attractive to younger generation who prefer to migrate to the city

• Improved yields key to increasing output. Newly planted hybrids yield 2 or 3 times the average.

Fixed price under new reforms has given farmers stability, but many of the long term problems remain unresolved…

Ghana output doubled between 2000/01 and 2010/11. But high inflation means grower price is now less attractive in real terms.

0

200

400

600

800

1,000

1,200

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

Prod

uctio

n ('0

00 to

nnes

)

0

100

200

300

400

500

600

Yield (kg/hectare)

production Yield

Indonesia still struggling with disease (CPB and VSD) and competition from other crops. Brazil and Ecuador have increased output.

0

100

200

300

400

500

600

2000/0

1

2001/0

2

2002/0

3

2003/0

4

2004/0

5

2005/0

6

2006/0

7

2007/0

8

2008/0

9

2009/1

0

2010/1

1

2011/1

2

2012/1

3

'000

mt

Indonesia Ecuador Brazil

• 2012/13 return to deficit after two surpluses

• Longer term supply remains vulnerable and increased production will rely on increasing yields

• Stock levels estimated at a minimum of around 1.9 mn mt

• Stock/Grind ratio 47% in 2012/13

Cocoa supply/demand summary

The stock grind ratio is the key determinant of cocoa prices

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

10% 20% 30% 40% 50% 60% 70% 80% 90%

Stock:consumption ratio

Real

pric

e

1999/2000 - 2011/12

• Little change in EU despite legislative changes

• No real prospects of legislative change in US

• Strong growth in the emerging markets.

• Developments in cocoa butter prices are key.

CBE outlook:

Thank You www.lmc.co.uk