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Rich Asplund

Cocoa Prices See Continued Support from Lower Ivory Coast Supply

July ICE NY cocoa (CCN23) on Wednesday closed up +2 (+0.07%), and July ICE London cocoa #7 (CAK23) closed down -4 (-0.17%).

Cocoa prices Wednesday settled mixed, with London cocoa falling to a 1-1/2 week low.  A stronger dollar Wednesday weighed on cocoa prices as the dollar index climbed to a 2-1/2 month high.  However, losses in cocoa prices were limited by signs of smaller supplies from the Ivory Coast.  The Ivory Coast government reported Monday that farmers sent a cumulative 2.09 MMT of cocoa to Ivory Coast ports for the 2022/23 marketing year (October 1 through May 28), down -3.0% y/y.  The Ivory Coast is the largest cocoa producer in the world.  

Cocoa prices last Monday rallied to 6-3/4 year highs on quality concerns of the Ivory Coast mid-crop.  Farmers have reported poor cocoa quality, with cocoa bean counts averaging 120 for every 100 grams.  Exporters prefer counts of 80 to 100 for every 100 grams, with the best cocoa quality having the lower bean count.

An excessive long position by funds in NY cocoa futures may add fuel to any long liquidation pressures as last Friday's weekly Commitment of Trader's (COT) report showed funds increased their net-long NY cocoa positions by 1,933 in the week ended May 23 to a 3-year high of 53,916.

Smaller cocoa supplies from Nigeria are supportive of prices after the Cocoa Association of Nigeria reported last Wednesday that Nigeria's Apr cocoa exports fell -46% m/m and -20.6% y/y to 9,924 MT.  Nigeria is the world's fifth-largest cocoa bean producer.

An increase in cocoa inventories is negative for prices after ICE-monitored cocoa inventories held in U.S. port warehouses last Monday rose to an 8-1/2 month high of 5,730,012 bags.  ICE-monitored cocoa inventories held in European port warehouses on May 15 rose to an 8-1/2 month high of 147,440 MT.

Signs of stronger global cocoa demand are bullish for prices.  On April 21, the National Confectioners Association reported Q1 North American cocoa grindings rose +2.4% m/m but fell -4.4% y/y to 109,666 MT.  On April 20, the Cocoa Association of Asia reported that Q1 Asia cocoa grindings rose +4.09% y/y to 222,028 MT.   On April 13, the European Cocoa Association reported that European Q1 cocoa grindings rose +0.5% y/y to 375,375 MT, the highest for a Q1 since 1999.  On April 19, a cocoa exporter group that includes six of the world's biggest cocoa grinders reported that its Q1 cocoa processing jumped +22% y/y to 189,405 MT.

On March 31, the Ivory Coast Agriculture Minister said that the Ivory Coast mid-crop, the smaller of the country's two annual harvests that began April 1, is expected to fall -25% y/y to 450,000 MT.

The monthly report from the International Cocoa Organization (ICCO) on March 24 was supportive for prices as the report said cocoa exports from the Ivory Coast fell -9.3% y/y to 530,314 MT between October and January, citing "the detrimental effects of cocoa-related diseases like the Cocoa Swollen Shoot Virus Disease."    

Cocoa prices have support from projections last month from the ICCO that global 2022/23 cocoa stockpiles would fall -3.5% y/y to 1.653 MMT.  In addition, ICCO said, "The expectation of a supply deficit has been compounded with weather variations, especially in West Africa."  On the bearish side, the ICCO forecast 2022/23 global cocoa production would climb +4.1% y/y to 5.017 MMT, and global cocoa grindings would fall -0.6% y/y to 5.027 MMT.

The quarterly report from the ICCO on December 1 was bullish for cocoa prices after ICCO said global 2021/22 cocoa production fell -8.0% y/y to 4.823 MMT as unfavorable weather and disease hampered cocoa yields.  ICCO also revised its 2021/22 global cocoa production figure downward by -419,000 MT from September.  ICCO also raised the 2021/22 global cocoa deficit to -306,000 MT from a Sep forecast of -230,000 MT.  In 2020/21, global cocoa production rose to a record 5.242 MMT, and the global cocoa market was in a surplus of +209,000 MT. 

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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