Cocoa Prices Remain Underpinned by Supply Concerns

December ICE NY cocoa (CCZ22) on Wednesday closed up +3 (+0.12%), and December ICE London cocoa #7 (CAZ22) closed up +10 (+0.50%).

Cocoa prices Wednesday closed slightly higher.  Cocoa has rallied sharply over the past three weeks, with NY cocoa posting a 6-1/4 month nearest-futures high last Friday.  A strike by dock workers in the Ivory Coast port of San Pedro threatens to spread to other Ivory Coast ports, which could sharply reduce global cocoa supplies.  The strike has already affected the transportation of cocoa supplies from farms to ports in the Ivory Coast.  The Ivory Coast government reported last Tuesday that Ivory Coast cocoa farmers sent a cumulative 348,923 MT of cocoa to Ivory Coast ports for the 2022/23 season (Oct 1-Nov 6), down -22.7% from the same time last year.  

Another risk to global cocoa supplies is the standoff between the Ivory Coast cocoa regulator and the world's major cocoa buyers after a government-imposed premium made Ivory Coast cocoa supplies less competitive in the global market, which resulted in fewer forward-sales contracts.  As a result, the Ivory Coast regulator has threatened to prevent traders from buying cocoa from farmers if those forward sales don't resume.

In a bullish factor, Rabobank cut its Ghana 2022/23 cocoa crop estimate last Thursday to 760,000 MT from a prior estimate of 800,000 MT, citing "concerns regarding fertilizer and chemical availability which is likely to stunt cocoa yields."

Cocoa prices have been supported by reports that the rainy season recently caused an outbreak of black pod disease in some west-African growing areas.  In addition, cocoa farmers continue to struggle with the lack of fertilizer and pesticides.  The war in Ukraine has limited Russian exports of potash and other fertilizers worldwide.

Smaller cocoa supplies from Nigeria are bullish for prices after an Oct 28 report showed Nigeria's Sep cocoa exports fell -16% y/y to 11,094 MT due to excessive rain.  Nigeria is the world's fifth-largest cocoa bean producer.

A large long position in London cocoa by commodity funds could fuel some long liquidation pressures.  Last Friday's weekly Commitment of Traders (COT) report showed funds boosted their net-long London cocoa positions by 12,765 to a 3-year high of 73,534 long positions in the week ended Nov 8.

Recent global cocoa demand has been mixed.  The National Confectioners Association Oct 20 reported North American Q3 cocoa grindings fell -3.4% y/y to 119,244 MT.  Also, the European Cocoa Association on Oct 13 reported that European Q3 cocoa grindings fell -1.6% y/y to 369,679 MT, the first y/y decline since Q1 of 2021.  Conversely, the Cocoa Association of Asia said Asia Q3 cocoa grindings rose +9.5% y/y to 231,080 MT.  Also, exporter group Gepex, which includes six of the world's biggest cocoa grinding companies, reported Q3 Ivory Coast cocoa grindings rose +18.1% y/y to 171.540 MT.

Cocoa prices found support when the International Cocoa Organization (ICCO) on September 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.  
 

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