Complexities of the cocoa powder and cocoa butter markets


Complexities of the cocoa powder and cocoa butter markets--


Price relationships between beans, butter, and powder are never as straightforward as buyers would like.  A change in one component can change the price of the other component in a reverse direction, have no effect at all—or even change the price in the same direction.  It is not a zero-sum ratio even when markets are behaving “normally”.


There are many reasons why the price of cocoa powder and cocoa butter are not transparent:


1.      World stock levels for beans, butter and powder are difficult to measure.  Consequently, the supply/demand ratio is difficult to calculate with any certainty.

2.      Cocoa is a tree crop.  Reactions to sudden changes in supply and demand are slow—potentially taking place over several growing seasons (i.e. years).

3.      The majority of the growing region is concentrated in a very small geographic area

a.       political stability is rare.   

b.      Impact of weather on the crop size is quite significant.

4.      Good statistical information on world trade of butter or powder frequently relies on verbal reports and on-site inspections.   Reliable data can (and is) frequently incomplete, misleading or incorrect.

5.      Cocoa and butter trade internationally.  Currency fluctuations can create or destroy markets.


Butter and cocoa powder are products of cocoa bean processing and the markets for each of these items are very different.  Butter and powder are rarely sold at the same time—thereby creating risks for the processor.  Furthermore, the cocoa powder market is further divided into quality sub-segments which each have their own set of supply and demand dynamics. 


Emerging markets have been elevating the demand for food products higher up the perceived quality ladder and this has had a particularly significant effect on the supply/demand dynamics of the cocoa powder and cocoa butter markets.  The traditional high butter/low powder balance has been inverted as a result.  Today, powder is more than 50% more expensive than butter.