The Kuala Lumpur-listed company is expected to procure cocoa from countries such as Ecuador, Peru and Indonesia. These countries are considered minor growers and Guan Chong is paying premiums to book their beans.
“That’s due to worries that some sellers in heavyweights like Ivory Coast and Ghana may default on supply contracts.
“Everybody is panicking,” the CEO of the firm Brandon Tay said in an interview in Kuala Lumpur.
He said prices are going higher every day, but the beans are not coming.
“We not only have to fight for beans, we’re also paying premiums,” he said, adding that the world is heading for a third year of supply deficit because of poor harvests in major growers.
He said the shortages, which coincide with rising seasonal demand for chocolate, have sent futures to an all-time high.
“Cocoa has seen wild price swings and huge premiums for near-term supplies.
“Guan Chong’s factories are still running and it is “comfortably” and “sufficiently” covered for the rest of the year but it’s continuously checking with suppliers to ensure deliveries, and also looking for more beans to avoid situations like contract defaults,” Tay said.
He said grinders are forking out huge premiums to secure beans to prevent any plant closures.
“These spreads are now reaching about US$400 a ton in Ecuador and Peru, and at least US$500 in Indonesia.
“In Ivory Coast, buyers are paying as much as £2,000 (US$2,542) extra, he said.
Tay said the company sells products like cocoa powder and butter, which give chocolate its smooth taste and texture but the global shortfalls of beans mean it’s starting to limit sales.
“We are quite skeptical about selling a lot because we’re worried whether the beans will be delivered.
“I rather sell the minimum, just in case, as long as my cash flows are healthy. I don’t want to commit to something that I cannot deliver,” Tay said.
Unprecedented Times
The most active cocoa contract in New York rose to US$8,493 a ton this week, the highest on record. “The rally isn’t over, there’s a lot more room to go higher,” Tay said.
Meanwhile, Citi Research analysts said that prices could reach as high as US$10,000 a ton and remain elevated until the second half of 2025.
BMI hiked its average price forecast last week for ICE-listed second-month futures by 60% to US$6,000 a ton.
Tay said that he had not seen such frantic trading and supply problems in his three-decade-long career in the cocoa industry. The company has increased hedging in futures and options to mitigate risks.
“People say we shouldn’t panic, but the reality is we don’t see beans coming. When we ask people to supply, they tell us to wait,” Tay said.
Guan Chong, which began as a family business in the early 1980s in the southern state of Johor, has processing facilities in Malaysia, Indonesia, and Ivory Coast with a combined annual processing capacity of 350,000 tons.
It’s the world’s biggest grinder after Barry Callebaut AG, Cargill Inc, and Olam International Ltd.