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Rich Asplund

Cocoa Prices Remain Strong on Supply Concerns

March ICE NY cocoa (CCH24) on Tuesday closed +24 (+0.57%), and Mar ICE London cocoa #7 (CAH24) closed +30 (+0.85%).

Cocoa prices on Tuesday closed higher on continued supply concerns.  The Ivory Coast's regulator last Friday halted forward sales for the 2023-24 Ivory Coast mid crop, which starts April 1, 2024, so the nation's production forecast can be reviewed.  The halt adds to the tumult of the region's cocoa supplies, and the impact could multiply if the halt is prolonged into the next season.

Cocoa supplies from the Ivory Coast, the world's largest cocoa producer, remain tight after Monday's data from the Ivory Coast government showed Ivory Coast farmers shipped 609,446 MT of cocoa to ports from October 1-December 10, down -35% from the same time last year.

Cocoa also had a positive carryover from last Wednesday when Rabobank projected a 2023/24 global cocoa deficit of -160,000 MT due to output declines in the Ivory Coast and Ghana.

Also, on the bullish side, ICE-monitored cocoa inventories held in U.S. ports have declined steadily since June and posted a 2-1/2 year low last Thursday.

A negative factor for cocoa was the action on December 1 from the International Cocoa Organization (ICCO) to cut its 2022/23 global cocoa deficit estimate to -99,000 MT from a previous forecast of -116,000, citing weaker global demand.  

On November 30, nearest-futures (CCZ23) cocoa posted a 46-year high as continuous rain has limited fieldwork and encouraged crop disease on West African farms, which provide most of the world's cocoa supply.  It has also stoked concern that current cocoa production cannot replenish supplies to avoid a global deficit.  According to Maxar Technologies, the total precipitation in West Africa since the rainy season started May 1 has been more than double the 30-year average.

Recent heavy rain in West Africa has caused black pod disease to spread and is a major bullish factor for cocoa prices.  The spread of the disease, which causes cocoa pods to turn black and rot, could result in lower cocoa crop quality and production and push the global cocoa market into a third year of deficit for the 2023/24 season.

Also, the spread of the swollen shoot virus is threatening Ivory Coast cocoa crops.  The virus is transmitted via mealybugs that feed on the sap of cocoa plants and will significantly reduce cocoa crop yields before eventually killing the plant.  Tropical Research Services estimates that about 20% of the cocoa crop in the Ivory Coast is infected with the swollen shoot virus.

Concern about lower cocoa production in Ghana, the world's second-largest producer, is bullish for cocoa prices.  Ghana's cocoa regulator said on August 16 that some of its cocoa farmers are unlikely to fulfill some of their cocoa contracts for a second season.  Ghana's regulator postponed 44,000 MT of cocoa shipments to future seasons due to a lack of supplies.  Ghana's 2022/23 cocoa crop is now expected to be around 683,000 MT, a 13-year low and 24% below initial estimates of 850,000 MT, as a lack of fertilizers and black pod disease hurt cocoa yields.  

On the bearish side,  Nigeria's Oct cocoa exports rose +12% y/y to 17,869 MMT.  Nigeria is the fifth biggest grower of cocoa beans in the world.

Cocoa prices remain supported by concern that an El Nino weather event could undercut global cocoa production.  On June 8, the U.S. Climate Prediction Center said that sea surface temperatures across the equatorial Pacific Ocean had risen 0.5 degrees Celsius above normal, and wind patterns have changed to the point where El Nino criteria have been met.  Cocoa prices rallied to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.

Soaring cocoa prices are undercutting global cocoa demand.  Circana reported that U.S. chocolate sales in the four weeks ended October 8 fell -9.2% y/y.  The National Confectioners Association reported on October 24 that Q3 North American cocoa grindings fell -18% y/y to 97,881 MT, weaker than expectations of a -12% y/y decline and the fewest grindings for a Q3 in 15 years.  The Cocoa Association of Asia reported on October 23 that Asia Q3 cocoa grindings fell -8.5% y/y to 211,468 MT.  The European Cocoa Association reported on October 12 that European Q3 cocoa processing fell -0.9% y/y to 366,298 MT, an improvement from the -5.7% y/y decline in Q2.  On the more positive side of demand, Gepex, an exporter group that includes six of the world's biggest cocoa grinders, reported on October 17 that its Q3 cocoa processing rose +7% y/y to 183,731 MT.

The ICCO reports that global 2022/23 cocoa production increased +2.4% y/y to 4.938 MMT, and global cocoa grindings increased +0.2% y/y to 5.005 MMT.  ICCO estimates end-of-season 2022/23 global cocoa stocks at 1.707 MMT and the cocoa stocks-to-grinding ratio at a 7-year low of 34.5%.  ICCO projected a global cocoa deficit for 2022/23 of -99,000 MT and said, "The expectation of a supply deficit has been compounded with weather variations, especially in West Africa." 

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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