When Ebola broke out in West Africa, the price of cocoa – the raw material for chocolate – shot up. Global cocoa prices hit a three-year high last September. The global cocoa market feared that the Ebola crisis might cause supply or transport issues in West Africa-the epicenter of the Ebola epidemic. This was premature panic. Apparently, Ebola’s outbreak in West Africa didn’t shut down, or even negatively impact, cocoa shipments from that part of the world.
West Africa is crucial for the global chocolate industry, because this region is responsible for 70% of total chocolate output. Ever since the Ebola-induced spike in cocoa prices, cocoa futures have been trending downwards. This should not be a surprise, considering the fact that, along with oil, all nine major commodities groups have shown negative movement. This is a rare occurrence, and cocoa futures are not immune to this trend.
Just how bad are things looking for global chocolate demand? One key indicator is the amount of bean grindings registered in the past quarter. According to figures from North America, Europe and Asia, bean grindings have fallen. This shows that there is a slowdown in global demand for chocolate. This is in keeping with the overall reduced demand for commodities across the board. If this persists, this can point to an extended period of global economic slowdown. While the luxury end of the global chocolate market might be positively impacted by all the fresh new wealth being created by central bank stimulus schemes, this segment of the market probably won’t offset overall demand erosion. The decline in cocoa futures is definitely a red flag.