Materials Risk

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Ahead of Easter we thought we would look at recent developments in chocolate Easter egg ingredients, specifically sugar, cocoa and milk.

Sugar: Sugar prices hit the lowest level for over two and a half years in March as the prospect of large supplies from Brazil (7%-9% higher than the previous crop year) weighed on the market. Sugar prices may receive support over coming months from biofuel demand. Sugar prices have fallen below ethanol prices incentivising mills to process sugar into ethanol. Meanwhile, a strengthening in the Brazilian currency, adverse weather and / or strategic stock building from China, India and other countries could also increase prices.

Cocoa: Cocoa bean prices are near their lowest level for ten months. Bean prices have declined on indications of high shipments from Ivory Coast, the top producing and exporting country. However, low prices may depress output setting the stage for higher prices. According to Rabobank low prices have “reduced the incentive to produce cocoa” encouraging farmers to scrimp on fertilisers for example which will eventually reduce yields.

Milk: International milk prices jumped to a record high in March as demand rose from Chinese buyers while drought in New Zealand cut supplies. New Zealand accounts for 60% of the global trade in milk powder. Since the start of the year milk powder prices have surged by 62% to over $5,000 per tonne.

As ever the impact on the retail price of dairy products is likely to be much smaller than that seen in wholesale markets with food companies absorbing much of the change. Savor your Easter eggs this weekend, as next year they could well be a fair bit dearer.

Happy Easter

Related article: Dairy product prices likely to rise