Forecasting the future
The reason for such reminiscing stems from the fact that I had somewhat of a déjà vu flashback while attending Blommer Chocolate Co.’s annual commodity purchasing seminar here in Chicago last week.
Perhaps it was the numbers and charts that took me back. Certainly the photo of a commodities buyer screaming and holding both hands to his face in sheer anguish struck a chord. As one senior editor I worked with told me: “Don’t ever try to get rich on commodities.”
Well, here I am, none poorer nor necessarily richer for heeding his advice. Although I can tell you after listening to the detailed and informed presentation put on by Blommer’s crack commodities crew ― Kip Walk, director of cocoa; Sheila Fortune, manager of commodity hedging; Jeff Rasinski, director of commodities and corporate procurement; and Ann Cromarty, commodity procurement manager ― I definitely had a better understanding of what had happened and what lies ahead (almost).
In short, what a difference a year makes for cocoa. From civil war in the Ivory Coast to unprecedented speculatory manipulation in London, there were more volatility than even the most grizzled and veteran cocoa buyer could handle.
Fast forward to 2011, which enjoyed the largest global cocoa crop on record, and “Voila!,” there’s some sanity in cocoa pricing. In addition, improved cocoa grind numbers – the process that converts cocoa beans to chocolate products – quickly filled the “potholes” left from previous cocoa crop deficits, Rasinski pointed out.
As those of you who purchase chocolate know well, it’s cheaper today than it was last year (although I understand cocoa shot up slightly today). Blommer’s commodity trackers believe that a price range between $2,400 to $2,700 per metric ton seems most probable for the coming 2011/2012 season, with $2,550 the likely median.
But it’s not all good news for chocolate and chocolate ingredient buyers. Traditionally, cocoa butter has been more expensive that cocoa powder. Last year, for the first time in many years (1976, I believe), cocoa powder prices soared, thanks to increased demand in a broad range of products (cakes, cookies, ice cream, etc.) using a chocolate flavor or component.
This imbalance continues and has made procurement of certain powders “tight,” says Rasinski. Moreover, he doesn’t see any change in the future, a situation that has prompted many chocolate users to opt for cocoa butter instead of cocoa butter replacers, given the low price.
And speaking of oils, there’s another factor to consider that wasn’t present in the past: fuel. The ongoing competition for oil stocks as biodiesel fuel continues to influence pricing.
As for sugar, well, you’re going to have to call your congressman on that. No change, I’m afraid, unless you’re producing outside of the United States. In that case, signs suggest a drop in price next year.
It’s a fascinating world, commodities. But I think I’ll heed my mentor’s advice and forego playing the markets. Rather, I’ll get my fix from experts such as Blommer’s crew to get a read of the land.
