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Commodities Watch

Cocoa market awaits impact of ADM Cocoa sale

By Oliver Nieburg+

02-Jul-2013
Last updated on 02-Jul-2013 at 16:47 GMT

How might the sale of ADM cocoa impact the global cocoa supply?
How might the sale of ADM cocoa impact the global cocoa supply?

The Archer Daniels Midland Company is in discussions to sell its cocoa processing operations. We find out how potential industry consolidation could affect the cocoa supply.

The world’s third largest cocoa grinder ADM announced last month that it was in talks to sell its cocoa ingredients division - a business unit that saw profits nosedive 24% on last year.

Market well-covered, says ICCO

Laurent Pipitone, director of the economics and statistics division at the International Cocoa Organization (ICCO), said: “The concern is that cocoa processing is consolidated in just a few players.”

Barry Callebaut today finalized an $860m deal to acquire Singapore-based Petra Foods’ ingredients division, helping it overtake Cargill as the world’s largest cocoa grinder.

Asked how the potential sale of ADM Cocoa was affecting the cocoa market, Pipitone said: “So far the market is well covered. There is no problem with the capacity. There is enough for all demand.”

He said that even if a buyer came in for ADM Cocoa and cut cocoa processing operations, a small reduction would not impact the supply and demand balance as there has been a lot of investment in cocoa processing in recent years and demand for chocolate has stalled.

ADM has an annually grinding capacity of around 60,000 metric tons (MT) and accounts for 15% of global cocoa processing – third behind Barry Callebaut and Cargill.

Potential suitors

Pipitone said there was a range of potential buyers, but he ruled out Barry Callebaut due to its recent acquisition of Petra.

“We are waiting to see if we have a new player or an existing processor. If it were to be Cargill they would become the largest player by far, but I don’t think that will happen.”

Cargill’s communications officer Laura Brems previously told this site that her firm was “assessing a number of initiatives to progress its business strategy,” but she refused to comment on speculation.

Supply and price outlook

Earlier this year, the ICCO forecast that the 2012/13 crop year would end in a small 45,000 MT deficit, but said there was 60,000 MT left over from previous seasons to cover demand.

Rabobank is forecasting a consecutive deficit in 2013/14 of 75,000 MT, which if realized would leave the market 47,000 MT short.

The financial services group expects ICE futures to climb 8% in Q2 2013 compared to the previous quarter to $2,350 per MT and Liffe futures to rise 6.5% to £1,525 per MT. It expects further price hikes up until Q1 2014.

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