The price of cocoa experienced a strong increase at the end of the first quarter of this year, although in recent months it has been moving in a field of high volatility, which makes it difficult to predict its future evolution with certainty. In this context, analysts Bank of America identified a number of opportunities to “invest in chocolate.”
In recent months, the firm has begun monitoring two firms specialized in chocolate, the Swiss Lindt & Sprüngli and Barry Callebaut. In the case of the former, they maintain a ‘buy’ recommendation, while in the case of Barry Callebaut their advice is ‘underweight’.
The firm details that their preference for Lindt & Sprüngli is due to the fact that “s“Premium exposure provides good short-term volume protection and medium-term opportunities.”
Since that time, the firm’s analysts have met “with investors from all over the world” pTo try to identify what the market sentiment is regarding the potential possibilities of companies specialized in cocoa and chocolate.
“While most investors we met agree on the attractive medium-term prospects for the chocolate category, the uncertainty around the near-term cocoa price and its broader implications over the value chain has sparked debate about who is mbest positioned among chocolate brands and suppliers“, they highlight.
Specifically, investors expressed doubts about “cocoa supply and demand dynamics, pricing needs for 2025 and the elasticity of the volume of chocolate”.
How will the price of cocoa evolve?
Looking to the immediate future, BofA analysts see “it is likely that the “The volatility of cocoa prices continues in the short term.”
In this sense, they highlight that “the uncertainty surrounding the supply of cocoa and its implications on the cocoa contracts spot and term is the number one topic” in their discussions with investors. The bank’s base case includes that FY 23/24 cocoa crops will decline by 25% to 30% in West Africa, a territory that represents half of the world’s supply.
This situation “has even pushed the Government of Côte d’Ivoire to limit the delivery of cocoa supply during the middle of the harvest (May-July, around 20% of annual production) to companies that have local milling capacities.” It should be remembered that Barry Callebaut owns a plant in the Ivory Coast.
“At this stage, we believe that the Volatility in spot and forward cocoa prices will continue until the end of Augustwhen the projections about the main harvest of the fiscal year 24/25 (which begins in October) become clearer,” they detail.
How does this change affect the price of chocolate?
Reflecting cocoa price inflation, they argue, “the impact of rising chocolate prices on volume (elasticity) and mix will be key.”
“Historically, the chocolate category is relatively inelastic. However, the Current price waves come after two years of double-digit prices that call into question historical patterns of elasticity, especially in the US market, which has been weak until now,” they say.
Taking all this into account, the firm expects that, for fiscal year 24/25, “Barry Callebaut’s volume will remain practically stable and Lindt’s volume/mix will remain in the low single digits.”
Source: Ambito
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