Mar ICE NY cocoa (CCH24) on Thursday closed +74 (+1.79%), and Mar ICE London cocoa #7 (CAH24) closed +87 (+2.54%).
Cocoa prices posted moderate gains on Thursday as a weaker dollar supported prices. Cocoa also had a positive carryover from Wednesday, when Rabobank projected a global cocoa deficit in 2023/24 of -160,000 MT due to production declines in Ivory Coast and Ghana.
Also, on the bullish side, ICE-controlled cocoa inventories held at U.S. ports have declined steadily since June and posted a 2-1/2-year low Thursday.
On Wednesday, NY cocoa fell to a 1-week low, and London cocoa fell to a 4-week low on negative carryover from last Friday when the International Cocoa Organization (ICCO) reduced its estimate of a global cocoa deficit in 2022/23 to – 99,000 MT. from a previous forecast of -116,000, citing weaker global demand.
Last Thursday, Mar NY cocoa posted a contract high, and nearest futures (CCZ23) posted a 46-year high. Cocoa prices remain supported as continuous rain has limited field work and fueled crop disease on West African farms that provide most of the world’s cocoa supply. It also raised concern that current cocoa production cannot replenish supplies to avoid a global deficit. According to Maxar Technologies, the total rainfall in West Africa since the rainy season started on May 1 has been more than double the 30-year average.
Signs of smaller cocoa production in Ivory Coast, the world’s largest cocoa producer, are bullish for prices. On Monday, data from the Ivory Coast government showed that Ivory Coast farmers sent 545,164 MT of cocoa to ports from October 1-December 2, down -34% from the same time last year.
Recent heavy rain in West Africa has caused the spread of black pod disease 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 quality and production of the cocoa crop 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 threatens the cocoa crops of Côte d’Ivoire. The virus is transmitted by mealy bugs that feed on the sap of cocoa plants and will significantly reduce cocoa yields before eventually killing the plant. Tropical Research Services estimates that approximately 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 has 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 about 683,000 Mt, a 13-year low and 24% below initial estimates of 850,000 Mt, as fertilizer shortages and black pod disease hurt cocoa yields.
On the downside, Nigeria’s October cocoa exports rose +12% y/y to 17,869 MMT. Nigeria is the fifth largest grower of cocoa beans in the world.
Cocoa prices remain supported by concern that an El Nino weather event could reduce global cocoa production. On June 8, the US Climate Prediction Center said sea surface temperatures across the equatorial Pacific Ocean rose 0.5 degrees Celsius above normal, and wind patterns changed to the point where El Nino criteria were met. . Cocoa prices surged to 12-year highs in 2016 after an El Nino weather event caused a drought that hampered global cocoa production.
The soaring prices of cocoa underestimate the global demand for cocoa. Circana reported that US 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 grinding fell -18% y/y to 97,881 MT, weaker than expectations of a -12% y/y decline and the fewest grindings for Q3 in 15 years. The Cocoa Association of Asia reported on October 23 that Asian Q3 cocoa grinding 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 on the -5.7% y/y decline in Q2. On the more positive side of demand, Gepex, an export group that includes six of the world’s largest cocoa millers, 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 milling increased +0.2% y/y to 5,005 MMT. ICCO estimates global end-of-season 2022/23 cocoa supplies at 1,707 MMT and the cocoa stock-to-grind 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, particularly in West Africa.”
More Cocoa News from Barchart
As of 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 for informational purposes only. For more information, please see Barchart’s Disclosure Policy here.
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