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Chocapolypse' Remains Unfulfilled, Despite Warnings

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05/29/2019 | 02:27pm EDT

By Kirk Maltais

The "chocapolypse" has been averted. At least for now.

Despite repeated warnings earlier this decade chocolate would be in short supply in 2020 because of a shortage of cocoa beans, supply remains ample. (www.wsj.com/articles/SB10001424052702304177104577310160997655178?mod=searchresults&page=1&pos=4) The latest International Cocoa Organization projections show growth in cocoa production outpacing demand for the third year in a row. A record-breaking 4.8 million metric tons of cocoa production is projected, creating a global surplus of 39,000 tons.

Last year, London cocoa futures on the Intercontinental Exchange finished the year up 20% at GBP1,787 per metric ton, making it one of the hottest commodities of 2018. It has since simmered down. The New York ICE cocoa futures contract traded at $2,438 a ton Wednesday, up only 0.2% since the start of the year.

One reason cocoa is no longer hot is stable weather in major cocoa-growing regions conducive to production.

"Nothing has gone wrong, a moderate surplus during the 2018-19 crop year [has] kept cocoa prices within a relatively tight trading range," said Eric Bergman, vice president with JSG Commodities.

So far this year, 1.9 million metric tons of cocoa have shipped from Ivory Coast ports, the hub for African production. This is 14% higher than last year, according to the ICCO.

Cocoa bean production has steadily been on the rise since 2010. West African production is projected to be nearly 3.5 million tons this year, up 650,000 tons since 2013, according to the ICCO.

Higher production can be seen as the fruit of corporate investment into its cocoa supply chain. Reacting to reports of a looming shortage, Mondelez International Inc. began its Cocoa Life sustainability program in 2012. The program operates in six cocoa-growing nations. The company allocated $400 million to help farmers learn to grow cocoa more efficiently and to support those communities.

"Our whole mission is to teach them to fish," said Christine Montenegro McGrath, vice president and chief of impact, sustainability and wellbeing at Mondelez. "Not to step in and say that 'we're a different culture and we have all of the answers.' We don't."

Mondelez owns chocolate brands Cadbury and Toblerone. It says the program reaches 142,000 cocoa farmers, and has been successful in increasing yields. Program farms in Ghana have yielded 15% more than nonprogram counterparts, the company said.

Mondelez confirmed last month it sources 43% of its cocoa from farmers in the program, and hopes to source 100% by 2025. (www.wsj.com/articles/mondelez-to-secure-100-cocoa-volume-through-sustainability-program-by-2025-11556638011?mod=searchresults&page=1&pos=10)

Mondelez isn't the only chocolate company with this kind of program. Mars Inc., maker of popular candy brands including M&M's, Snickers and Twix, unveiled a $1 billion sustainability program last year. Hershey Co.'s program is Cocoa For Good, and it says it will invest $500 million into cocoa-growing communities through 2030.

"[We] recognize the potential risks created by crop disease, decreasing yield and climate change," said Jeff Beckman, Hershey's director of corporate communications.

The predictions of a chocapolypse may have been based on runaway bullish price sentiment from problematic data analysis, one market participant said.

"In this case, the input assumptions folks were using were flawed at best and grossly exaggerated at worst, leading to doom-and-gloom predictions that were not based on sound science or statistically sound," said Jeff Rasinski, director of commodities and corporate procurement with Blommer Chocolate Co.

Forecasts in 2013 anticipated global cocoa demand rising 3% and crops growing only 1% per year, he said, both figures on the extreme ends of forecasts.

Instead, cocoa production expanded 2.25% annually, outpacing 2% demand, according to Blommer, with little indication supply would tighten within the next year.

Despite the ICCO data, Mr. Bergman said it is too early to label the chocapolypse "dead" when it may just be delayed, especially if unpredictable weather weighs on cocoa crops. "Even though it is too early to make an accurate prediction for the 2019-20 crop, the market is currently discounting a small deficit as a result of a steady increase in demand."

Write to Kirk Maltais at kirk.maltais@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
LONDON COFFEE -1.07% 1765 End-of-day quote.0.00%
LONDON SUGAR 0.70% 315.2 End-of-day quote.-5.63%
MONDELEZ INTERNATIONAL -0.62% 54.89 Delayed Quote.37.12%
NEW YORK COCOA 1.11% 2467 End-of-day quote.1.98%
THE HERSHEY COMPANY -1.57% 145.18 Delayed Quote.35.45%
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Financials (USD)
Sales 2019 7 946 M
EBIT 2019 1 701 M
Net income 2019 1 168 M
Debt 2019 3 713 M
Yield 2019 2,09%
P/E ratio 2019 25,9x
P/E ratio 2020 24,1x
EV / Sales2019 4,28x
EV / Sales2020 4,18x
Capitalization 30 314 M
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