Cocoa Falls Despite European Demand Boost

By Julie Wernau and David Hodari Features Dow Jones Newswires

Cocoa closed lower for a fifth straight session Tuesday despite a slight bump in the tonnage of cocoa processed in Europe, a proxy for demand.

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European processing volumes of raw cocoa beans rose 2.1% in the second quarter year-over-year, slightly outperforming industry expectations, according to data released Tuesday by the European Cocoa Association.

Cocoa grindings--the amount of raw cocoa processed into butter and powder for the manufacturing of confectionery and chocolate--ticked up to 331,850 metric tons of beans in the April-June period, although that represented a slight fall from the first quarter, the Brussels-based ECA said. Europe is the world's largest consumer of cocoa.

Cocoa for September fell 1.1% to end at $1,817 a ton on the ICE Futures U.S. exchange, its lowest close since May 3.

The next international season for cocoa begins in October and while prospects for the next crop look favorable--with analysts anticipating a surplus cocoa supply--it is unclear how weather patterns in West Africa, the world's largest growing region, could play out.

The contract is entering a seasonal shift in which little reliable information about the upcoming cocoa crop creates low trade volumes and high volatility.

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The cocoa market is looking ahead to the next quarter of cocoa processing data out of North America and Asia for indications of how recently low prices for beans have affected demand for the product.

"Drastic declines in cocoa prices over the last 12 months did not totally carry over to byproducts, and processing margins for paste, butter and powder have risen and remained high," said Fabio Rezende, market analyst at INTL FCStone, in a note to client.

In the Netherlands, where Europe's top cocoa processors reside, processing margins for those byproducts combined is 11.8% above the five-year average and in the U.S., 9.7% above the average, despite a 15% drop in bean prices year-to-date, Mr. Rezende said. In part, the issue is idle processing capacity.

The North American cocoa grindings report is due to be released on July 20 at 4 p.m. EDT.

In other markets, raw sugar for October fell 0.9% to end at 13.44 cents a pound, arabica coffee for September was down 1.3% to settle at $1.269 a pound, frozen concentrated orange juice for September was off 3.6% to close at $1.30 a pound and December cotton ticked up 0.6% to close at 67.67 cents a pound.

Write to Julie Wernau at julie.wernau@wsj.com

(END) Dow Jones Newswires

July 11, 2017 16:39 ET (20:39 GMT)