Cocoa Futures Market News and Commentary
September ICE NY cocoa (CCU19) on Friday closed up by +56 (+2.29%) and September ICE London cocoa #7 (CAU19) is up by +32 (+1.77%). Tightness in current cocoa supplies has prompted short-covering in cocoa futures as ICE-monitored cocoa inventories have fallen for six consecutive sessions to a 5-week low Thursday. Cocoa prices fell to 2-week lows Thursday on weather forecasts for drier conditions in West Africa, which should alleviate flooding concerns and allow farmers to deliver their cocoa beans to ports. Cocoa production remains solid as Monday's data from the Ivory Coast government showed that Ivory Coast cocoa farmers sent 2.065 MMT of cocoa to ports during Oct 1-Jun 16, up +16.7% from the same time last year. Also, Reuters reported Friday that the Ivory Coast cocoa mid-crop this year may reach a record 600,000 MT, citing exporters and pod counters. Cocoa production also remains strong in Ghana after data from the Ghana Cocoa Board last Tuesday showed that cocoa purchases from Ghana farmers during the first 33 weeks of the harvest (Oct 5 through May 23) rose +4.0% y/y to 751,185 MT. Cocoa prices rallied to 1-year highs June 12 after Ivory Coast and Ghana processors and buyers agreed to set a minimum price of $2600/MT for the 2020/21 season, although there is some concern that the high minimum price will result in overproduction. Another supportive factor for cocoa prices is the recent outbreak of the swollen shoot virus in Ghana that causes smaller cocoa beans and reduces yields after Ghana's Cocoa Board on May 28 said it may need to cut its Ghana 2018/19 cocoa crop estimate to 800,000 MT from a prior view of 850,000 MT. A potential bearish factor for London cocoa is an extremely long position by funds after Friday's weekly Commitment of Traders (COT) data showed funds boosted their long positions on ICE cocoa futures by 4,580 the week ended June 18 to a 13-month high of 50,862 long positions, which increases the threat of long liquidation pressure. Big Picture Cocoa Market Factors: Bullish factors for cocoa include (1) the action by Ghana and the Ivory Coast, who together account for about 60% of the world's cocoa output, to suspend cocoa-bean sales for the 2020/21 season due to the implementation of a high minimum price of $2,600/ton, (2) an outbreak of the swollen shoot virus in Ghana that prompted Ghana's Cocoa Board to cut its Ghana 2018/19 cocoa crop estimate to 800,000 MT from a prior view of 850,000 MT, and (3) strong cocoa consumption in Q1, which rose by +2.0% y/y to 121.129 MT in North America, +3.3% y/y to 370,359 MT in Europe, and +9.5% y/y to 208,388 MT in Asia. Bearish factors for cocoa include (1) ICCO's projection that the 2018/19 global cocoa surplus will widen to +39,000 MT from +9,000 MT in 2017/18, and (2) ample current supplies after cocoa stockpiles held at ICE-monitored warehouses climbed to a 10-1/2 month high on May 29 of 4.665 million bags.