Cocoa Climbs on Demand Optimism

March ICE NY cocoa (CCH23) on Thursday closed up +14 (+0.54%), and March ICE London cocoa #7 (CAH23) closed up +24 (+1.17%).

Cocoa prices Thursday closed moderately higher on hopes that cocoa demand is improving.  Gepex, a cocoa exporter group of six of the world's biggest cocoa grinders, reported last Thursday that Gepex Nov cocoa processing rose +5.1% y/y to 55,248 MT.

Gains in London cocoa accelerated Thursday after the British Pound (^GBPUSD) fell to a 6-week low.  A weaker pound boosts cocoa that is priced in terms of sterling.

NY cocoa last Wednesday posted a 9-month high on signs of tighter cocoa supplies.  ICE-monitored NY cocoa inventories held in U.S. ports have trended lower over the past four months and fell to an 8-1/2 month low Tuesday.  Also, ICE-monitored cocoa stockpiles held in EU ports remain at an 8-3/4 month low of 112,880 MT.

An excessive long position in London cocoa futures could fuel long liquidation pressures after last Friday's weekly Commitment of Traders (COT) report showed funds boosted their net-long London cocoa positions by 5,067 to 79,680, a 7-year high.

Abundant cocoa supplies from the Ivory Coast, the world's largest cocoa producer, are bearish for prices.  Ivory Coast government data Tuesday showed that Ivory Coast farmers sent a cumulative 1.16 MMT MT of cocoa to Ivory Coast ports for the 2022/23 marketing year from October 1 through January 1, up +12.6% 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.

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.

Larger cocoa exports from Nigeria are bearish for prices.  News on December 22 showed that Nigeria's Nov cocoa exports jumped +130% m/m and +17% y/y to 36,819 MT.  Nigeria is the world's fifth-largest cocoa bean 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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