Cocoa Heads for Weekly Drop in London as Industry Demand Sags

By Rachel Graham

Oct. 3 (Bloomberg) -- Cocoa headed for a weekly decline, adding to the largest quarterly drop in five years, as industry and investor demand stagnated.

There is ``little evidence of any significant industry interest,'' Stephanie Garner, a trader at Sucden (U.K.) Ltd. in London, wrote in a report today.

Barry Callebaut AG, a Zurich-based chocolate maker, said this week that economic conditions are ``particularly gloomy'' and that there are ``big uncertainties'' about consumer demand. A report by the Chartered Institute of Purchasing and Supply today showed the U.K. service industry contracted the most in at least 12 years in September as the country moved closer to a recession.

Cocoa for December fell 15 pounds, or 1 percent, to 1,425 pounds ($2,518) a ton on the Liffe exchange in London as of 1:21 p.m. local time. A close at that price would make for a 7 percent drop this week. Cocoa slid 16 percent in the three months through September, the biggest decline since the second quarter of 2003.

Cocoa, used in confectionary and cosmetics, averaged 1,048 pounds a ton in 2007.

``Industrial buyers remain relatively quiet, with many hoping for prices to break soon toward lower levels with the start of the West African main crops,'' Barry Callebaut said this week in the report, posted on its Web site.

Ivory Coast and Ghana are the two largest suppliers of cocoa worldwide.

Grindings Slow

Third-quarter processing figures will be released in the next two weeks, according to Barry Callebaut.

Cocoa-bean processing in the U.S. fell 16 percent in the second quarter, the Chocolate Manufacturers Association said July 18. European grindings rose 1.7 percent in the quarter, the slowest growth in that period in four years, according to the European Cocoa Association.

Cocoa has also fallen as the strengthening dollar diminished the appeal of commodities as an alternative investment.

The dollar gained 7.4 percent against the euro in the third quarter. The UBS Bloomberg Constant Maturity Commodity Index fell 14 percent in the same period.

``With the current market, speculative positions are being unwound,'' Yann Gindraux, a food and beverage analyst at Vontobel Holding AG, said by phone from Zurich. ``That's had a negative effect on the price.''

Cocoa reached 1,800 pounds a ton on July 1 in London, the highest since at least 1989.

Among other agricultural commodities traded in London, white, or refined, sugar for December fell $13.80, or 3.7 percent, to $361.50 a ton and robusta coffee for November fell $20, or 1 percent, to $1,911 a ton.

To contact the reporter on this story: Rachel Graham in London rgraham13@bloomberg.net.