Cocoa and coffee could give investors a buzz

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In the U.S., the true comfort foods are chocolate and coffee — which may provide relief for commodity investors battered by plummeting prices for oil, gold, wheat and other products.

The prices of most commodities have tumbled this year as recession has spread around the globe, hammering consumer demand for the raw materials that go into a loaf of bread, your car’s gas tank and much more.

But cocoa and, to an extent, coffee have bucked that trend, and some analysts think they can keep doing so.

While oil prices have plunged 51% this year and wheat prices are off 41%, coffee — currently trading at around $1.10 a pound — has fallen a comparatively modest 17% in the commodity markets, according to Brad Zigler, managing editor of Santa Rosa-based HardAssetInvestor.com.

And cocoa prices, now at $2,372 a metric ton, are actually up 15% for the year.

“This is the only good news we can find at the moment” in commodities, said Mark Hansen, director of trading at CPM Group.

Historically, coffee consumption tends to hold up well during hard economic times, Hansen said. What changes is where it’s consumed.

“Instead of going to Starbucks, you buy the 2-pound drum of Maxwell House and make it at home,” he said.

That isn’t good news for Starbucks, which is closing stores amid declining sales, but it is “a positive for the overall volume of coffee on the market” and could help put a floor under coffee prices, Hansen said.

In a report last month, Zigler noted that coffee consumption rose an average of 2.2% during recent recessions.

Zigler estimates that an 8-ounce cup of joe brewed at home with Folger’s from the local grocery store costs less than a quarter. A 12-ounce (“tall”) cup of Pike Place Roast at Starbucks runs $1.25.

Hansen and Zigler also note that coffee supplies are tight, the result of the frozen credit markets making it tough for growers to finance purchases of fertilizer and pesticides. Coffee inventories in Brazil, the world’s biggest producer, are at 50-year lows, U.S. officials estimate.

“A bad production year would raise a distinct possibility of shortage,” Zigler wrote.

The outlook for cocoa prices is more semi-sweet than sweet for sellers of the beans.

Chocolate sales appear to be holding up pretty well in the face of economic hard times, but that could change if things get markedly worse — as many economists expect. In particular, sales of the pricier dark chocolate — which uses a much higher percentage of cocoa than the milk chocolate that Americans traditionally have preferred — could melt along with the economy.

“You don’t see a dramatic decline in candy consumption in the early stages of a slowdown. People see it as an affordable luxury,” Zigler said. “The real diminution in demand for cocoa and chocolate products is a little further down the line in an economic slowdown.”

A spokesman for Hershey Co., by far the biggest player in the $24-billion U.S. candy market and a big user of cocoa beans, said the company’s overall sales were weathering the economic storm so far. But he acknowledged that the growth rate of Hershey’s premium dark chocolate offerings had slowed along with the economy.

Here again, uncertainties about supply could provide a prop for cocoa prices, said Edward Jones analyst Matt Arnold, who follows Hershey.

More than half of the world’s cocoa is grown in the West African nations of Ghana and the Ivory Coast, with the latter accounting for a whopping one-third of total global production.

“The Ivory Coast is not a very stable place politically,” Zigler said, noting in another recent report that supply disruptions and shortages are always a possibility.

That could mean higher profits for investors — and a potential stomach ache for chocoholics.

-- Martin Zimmerman