Cocoa Prices Mixed as Dollar Strength Sparks Long Liquidation

December ICE NY cocoa (CCZ22) on Thursday closed down -19 (-0.79%), and December ICE London cocoa #7 (CAZ22) closed up +2 (+0.10%).

Cocoa prices Thursday settled mixed, with London cocoa posting a 2-1/4 year high.  NY cocoa fell back from a 1-month high Thursday and closed moderately lower, and London cocoa gave up almost all of its advance after a rally in the dollar (DXY00) sparked long liquidation in cocoa futures.  Cocoa prices have pushed higher over the past week on concern about next year's West African cocoa crop.  A lack of fertilizer for cocoa farmers in West Africa risks undercutting next year's cocoa yields in the Ivory Coast and Ghana.  The war in Ukraine has limited Russian exports of potash and other fertilizers worldwide.

An excessive short position by funds in NY cocoa may fuel any short-covering rally.  Last Friday's weekly Commitment of Traders (COT) data showed funds boosted their NY cocoa net-short positions by 7,890 in the week ended Sep 27 to a 5-year high of 44,434.

Smaller supplies from Nigeria, the world's fifth biggest cocoa producer, are bullish for cocoa prices after Nigeria reported last Thursday its Aug cocoa bean exports tumbled -48% y/y to 10,823 MT.

Abundant cocoa supplies from the Ivory Coast, the world's biggest cocoa producer, are bearish for prices.  The Ivory Coast government reported Monday that Ivory Coast cocoa farmers sent a cumulative 2.47 MMT of cocoa to Ivory Coast ports for the 2021/22 season (Oct-1-Sep 30), up +0.4% y/y.  

Cocoa prices found support when the International Cocoa Organization (ICCO) on Sep 1 cut its 2021/22 global cocoa production estimate to 4.890 MMT from a June forecast of 4.923 MMT and raised its 2021/22 global cocoa deficit estimate to -230,000 MT from a June forecast of -174,000 MT.  In 2020/21, global cocoa production rose to a record 5.24 MMT, and in 2020/21, the global cocoa market was in a surplus of +215,000 MT.

In a bullish factor, Ghana reported on July 27 that its 2021/22 cocoa crop fell by -35% y/y to 685,000 MT, the smallest crop in 12 years, due to drought and swollen shoot virus.  Ghana is the world's second-largest cocoa producer.  However, the Ghana Cocoa Board estimates 2022/23 Ghana cocoa production will rebound +31% y/y to 850,000 MT.

Global cocoa demand for Q2 has been mixed.  The Cocoa Association of Asia (CCA) reported on July 22 that Q2 Asia cocoa grindings rose +3.6% y/y to 228,895 MT, a new record for the quarter and the second-highest grind in the history of the CCA.  Conversely, the European Cocoa Association on July 20 reported that European Q2 cocoa grindings fell -2.5% q/q to 364,081 MT.  In addition, the National Confectioners Association on July 22 reported that Q2 North American cocoa grindings fell -6.3% y/y to 115,899 MT.

Recent reports on chocolate demand have also been mixed.  Researcher IRI reported on July 14 that the volume of chocolate products sold in the U.S. dropped -1.5% y/y in the 13 weeks that ended June 12.  However, Barry Callebaut, the world's leading manufacturer of chocolate and cocoa products, reported Aug 31 that its global chocolate sales grew +9.1% in the first nine months of the fiscal year 2021/22 ended May 31.  

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