Baking & Snack - March 2010 - 60

COMMODITY MARKETS

Ingredients'
MIXED
BAG
BY RON STERK
akers will face a mixed bag when sourcing ingredients
in 2010. Fortunately, flour supplies are ample, with
one possible exception, and prices are down from
a year ago. Sugar supplies are expected to be tight
through much of the year, and prices currently are about
50% above year-ago levels. But cocoa powder supplies are
severely tight, as reflected in current pricing that is more
than double that of 2009. The situation for other ingredients such as egg and dairy products and bakery shortening
should be more manageable for the year, but prices for most
are expected to creep higher.
Price and supply situations for cocoa and sugar did not
develop overnight, but the severity and longevity of historically high prices and tight supplies of each may have caught
buyers who aren't in the market regularly off guard. Buyers
have found supplies hard to find at desired prices and, in
the case of cocoa, at desired volumes. The situation in cocoa
powder is further complicated by outside influences.

IMBALANCE IN COCOA. Cash cocoa powder prices reported by Milling & Baking News are the highest in records
going back to the early 1980s, and the general consensus
among market analysts is that prices could go higher. In the
first quarter of 2010, basic 10-to-12% natural cocoa powder
couldn't be bought for under $2 a lb in most cases, which
was more than double year-ago values.
"It doesn't matter how much you're willing to pay," said a
source at a major international cocoa processor, concerning
the tight powder supply situation. Much of his company's
production of powder was sold out for 2010, although he
noted most customers also were well covered for the year.
He said he expects supplies will remain tight for the next six
to nine months with still higher prices possible.
A source at a major chocolate manufacturer agreed that
most users had good cocoa powder coverage for the year, but
many chocolate users had only about three months coverage due to uncertainty about demand. Those needing to buy
chocolate also will pay higher prices, according to this source.

Ample flour supplies result
in lower prices in 2010,
while tight situations lead
to historically high prices
for cocoa and sugar.

Because both cocoa butter and press cake, which is
ground into cocoa powder, result from grinding cocoa
beans, processors must be able to sell both. But global economic conditions have weakened demand for cocoa butter,
which is used in higher quality chocolate, and supplies are
ample. At the same time, demand for cocoa powder, which
typically is cheaper than cocoa butter, has been strong. But
cocoa processors have cut back production because of excess
cocoa butter stocks, which also reduced powder production
and supplies. Several plants in Asia have been shuttered for
months because of slow butter sales, and other plants only
process cocoa beans as they make new sales of butter.
North American cocoa grind, an indication of demand,
was down 1.5% from a year earlier in the fourth quarter and
was down 5.4% for all of 2009 from 2008, according to data
from the National Confectioners Association.
While world cocoa bean supplies are seen as adequate
for demand in 2010, despite the butter-powder imbalance,
some concerns remain, especially in the Ivory Coast, which
accounts for 40% of world supply. Cocoa bean deliveries
to ports were up more than 10% from a year ago from the
beginning of the crop year Oct. 1, 2009, through early February. Last year's deliveries started slowly and built momentum. This year, strong prices encouraged early sales, but deliveries tapered off much earlier. A fire at a cocoa warehouse
in the Ivory Coast further tightened supply by destroying
about 2% of that country's cocoa bean and product exports,
according to press reports.
Recent reports indicated strong cocoa bean prices have
prompted Ivory Coast and other West African farmers to
double their purchases of fertilizer, which could significantly increase cocoa bean output in one to two years. But a
permanent increase in production would take longer since
beans grow on trees that take several years to reach full production potential. Production in the top-producing country has been in decline for about five years, due to weak
prices and the lack of sound farming practices, including
fertilization. Higher prices also have encouraged increased

March 2010 / BAKING & SNACK

Baking & Snack - March 2010

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