Cocoa Prices Fall Back on Favorable Weather in West Africa

March ICE NY cocoa (CCH23) on Wednesday closed down -17 (-0.67%), and March ICE London cocoa #7 (CAH23) closed down -1 (-0.05%).

Cocoa prices Wednesday closed lower.  Cocoa was under pressure Wednesday on a report from Goldman Sachs that said there is a downside risk for cocoa prices as favorable weather supports West African cocoa production.

Ample cocoa supplies from the Ivory Coast are also bearish for prices after Monday's news showed Ivory Coast farmers sent a cumulative 941,874 MT of cocoa to Ivory Coast ports for the 2022/23 marketing year from October 1 through December 11, up +8.8% y/y.

Cocoa prices have seen support from concern about the quality of some West African cocoa crops.  Cocoa farmers continue to struggle with the lack of fertilizer and pesticides as the war in Ukraine has limited Russian exports of potash and other fertilizers worldwide.

Demand concerns are a bearish factor for cocoa prices after the CEO of Barry Callebaut, the world's largest maker of bulk chocolate, said last month that because so many customers stocked up on chocolate due to supply chain issues, demand is likely to be flat in into the first half of 2023.  

Cocoa prices have underlying support from signs of tighter U.S. supplies after ICE-monitored cocoa inventories held in U.S. ports Tuesday dropped to a 6-1/4 month low.

The quarterly report from the International Cocoa Organization (ICCO) on December 1 was bullish for cocoa prices after ICCO said global 2021/22 cocoa production fell -6.8% y/y to 4.89 MMT as unfavorable weather and disease hampered cocoa yields.  ICCO revised its 2021/22 global cocoa production figure downward by -67,000 MT from the September figure.

Smaller global cocoa supplies from Nigeria are supportive of prices.  Last Tuesday's news showed that Nigeria's Oct cocoa exports fell -21.5% y/y to 16,013 MT.  Nigeria is the world's fifth-largest cocoa bean producer.

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.

Recent global cocoa demand has been mixed.  The National Confectioners Association October 20 reported North American Q3 cocoa grindings fell -3.4% y/y to 119,244 MT.  Also, the European Cocoa Association on October 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 ICCO on September 1 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.

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