Equities

Barry Callebaut Shares Dive 11% Amid Cocoa Price Surge

Barry Callebaut shares drop 11% as cocoa prices surge 131%, impacting chocolate demand.

By Barry Stearns

7/11, 09:05 EDT
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Key Takeaway

  • Barry Callebaut shares plunged 11% due to declining sales volumes and surging cocoa prices, which have risen by 131% year-over-year.
  • Cocoa prices more than doubled this year, driven by poor West African harvests, leading to record-high New York cocoa futures above $11,000 a ton.
  • Despite high cocoa costs, European cocoa processing rose 4.1% in Q2; however, grindings are expected to decline as inventories deplete.

Barry Callebaut Shares Plunge

Barry Callebaut AG, the world's largest bulk chocolate maker, saw its shares drop by as much as 11% on Thursday, marking the most significant decline since 2015. This plunge came after the company reported a slight decline in sales volume for the quarter through May. The drop in share price reflects investor concerns about whether chocolate demand can withstand the surge in cocoa prices. Cocoa prices have more than doubled this year due to weak harvests in major producing countries, leading to fears that higher input costs could dampen chocolate demand.

Vontobel analyst Jean-Philippe Bertschy commented, "Barry Callebaut continues to face significant exogenous, unprecedented market headwinds," despite the company having a loyal customer base and encouraging growth rates. He also noted that cocoa prices are expected to remain high this year. Barry Callebaut reported that the prices it pays for cocoa beans have risen by an average of 131% from a year ago. Despite these challenges, the company has managed to pass on the cost increases to most of its customers, resulting in a 16.3% growth in Swiss franc revenue.

Cocoa Prices Impact

The surge in cocoa prices has been driven by poor harvests in West Africa, which has led to a historic shortage and record-high prices. New York cocoa futures hit an all-time high of more than $11,000 a ton in April, and although prices have eased since then, they remain more than double what they were a year ago. This price increase has not yet fully impacted chocolate makers, as many had secured their cocoa supplies before the worst of the crunch. However, as these inventories run low, processors will need to replenish supplies at higher prices, which is expected to weigh on grindings in the second half of the year.

Darren Stetzel, vice president of soft commodities for Asia at broker StoneX, stated, "We are more likely to see a significant change in the grind number in the second half of the year." He also mentioned that the market has had to adapt to the scarcity of beans, which should ease some demand pressure. Some chocolate makers are already using substitutes such as palm oil to mitigate the impact of high cocoa prices.

European Cocoa Grindings

Despite the high cocoa prices, cocoa processing in Europe unexpectedly rose in the second quarter. The European Cocoa Association reported a 4.1% increase in processing from a year earlier, contrary to analysts' expectations of a slight slowdown. Dixon Poh, assistant vice president of soft commodities for Asia at broker StoneX, remarked, "The grindings figure is much stronger than expected and was probably a big surprise to market participants." This unexpected increase is likely due to companies tapping into stockpiles secured before the worst of the price surge.

However, the resilience in cocoa processing may not last. As low inventories force processors to replenish supplies at higher prices, grindings are expected to decline in the second half of the year. Already, there are signs that chocolate demand is weakening as consumers react to rising prices. Barry Callebaut reported a decline in sales volumes in the third quarter of its fiscal year, although cocoa powder demand has remained robust.

Street Views

  • Jean-Philippe Bertschy, Vontobel (Bearish on Barry Callebaut):

    "Barry Callebaut continues to face significant exogenous, unprecedented market headwinds."

Management Quotes

  • Peter Vanneste, CFO of Barry Callebaut:

    "The implementation of a restructuring plan that was announced last year and included savings across the business was well under way."