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Insight of the Day: Record cocoa prices leave a bitter aftertaste for chocolatiers

Record cocoa prices are causing concern for chocolatiers, and the situation is impacting companies like Barry Callebaut. Here are the key points:

1. Cocoa Price Surge:

- Supply disruptions have led to remarkable price increases for cocoa beans.

- Barry Callebaut's shares have declined by a third since the start of 2023 due to the surge in cocoa prices.

2. Consumer Demand:

- Traditionally, Barry Callebaut has experienced inelastic demand despite rising prices.

- Volumes remained resilient in the first half of the year, rising by 1%.

- However, there are signs of strain elsewhere, particularly in working capital.

3. Strain on Working Capital:

- Working capital has been squeezed, contributing to negative free cash flow and increased net debt.

- Barry Callebaut has refinanced debts and expanded credit facilities to address potential resource needs.

4. Cost Savings and Cocoa Market Evolution:

- Cost-saving measures were implemented before the cocoa price surge.

- The cocoa market has evolved, with chocolate makers seeking out premium grades for sustainability promises.

- Even at today's spot prices, higher-quality cocoa can trade at a 10% premium to the benchmark.

5. Spot Prices and Debt Impact:

- Spot prices remain high due to producers' fears of running out of higher-quality beans.

- Buyers are avoiding forward markets in Ghana due to the country's financial crisis and debt default.

- These factors will likely keep spot prices elevated, impacting chocolatiers' financials.

In summary, while Barry Callebaut has managed to maintain volumes, the cocoa price surge poses challenges, and the market dynamics may continue to affect chocolatiers' financials.


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